PHL banks told to scale up for regional banking integration
PHILIPPINE BANKS should start positioning themselves in terms of capital and scale as the country moves closer to regional banking integration, with more foreign lenders expected to venture into the country in the coming years, the Bangko Sentral ng Pilipinas (BSP) chief said.
BSP Governor Amando M. Tetangco, Jr. asked local banks to craft concrete plans and brace themselves for increased competition, as the Association of Southeast Asian Nations (ASEAN) now pursues integration in the financial and banking channels.
The ASEAN Banking Integration Framework (ABIF) was first endorsed in December 2014, and seeks to allow duly-identified qualified ASEAN banks (QABs) to “operate freely” across member-economies in the region.
“This is where the Philippines can set specific targets for increased market share in the region... ABIF is now unfolding — it provides us with opportunities. The strategic issue therefore is how you will now operate given that regional integration is upon us,” Mr. Tetangco said in a recent speech before the national convention of the Bankers Institute of the Philippines in Tagaytay City.
One route which may be pursued is to apply as a QAB, which allows a lender to operate in bigger markets but will have to face “new aspects of competition, different market conditions, and differences in capital requirements,” the central bank chief said.
Ahead of the 2020 integration, the ABIF eyes that the Philippines alongside members of the ASEAN- 5 — Indonesia, Malaysia, Singapore, and Thailand — should have at least one bilateral deal signed by 2018 before a full integration two years later.
In March 2016, the BSP signed a bilateral agreement with the Bank Negara Malaysia to mark its first deal under the ABIF, which seeks to accept three QABs from one country to operate in the other jurisdiction.
Two more agreements are expected to be signed “as early as next month,” Mr. Tetangco said. The BSP has been in discussions with officials from the Bank of Thailand and Otoritas Jasa Keuangan
of Indonesia, the BSP official previously disclosed.
Apart from the bilateral deals, Mr. Tetangco earlier said at least six more foreign lenders are in various stages of talks with the central bank as they look to venture into the Philippine market.
If realized, this would add to nine foreign lenders who have set up shop in the country over the last two years after Republic Act 10641 liberalized the banking sector.
Mr. Tetangco said the Philippines’ solid macroeconomic footing and sound banking system are attracting more players. The Philippine economy grew by 6.8% in 2016 as among the fastest in the region, with a big consumer base and a planned infrastructure push from the government which could boost lending.
Those not looking to scale up as QABs still need to keep a “good competitive strategy” in the face of heightened competition, Mr. Tetangco added.
“ABIF makes it imperative that you improve your competitiveness by lowering operating costs, increasing product and service innovations, and improving service quality. This requires more investments in technology and training. Ultimately, this needs more capital and scale to thrive,” the BSP chief also said.
“Preferring the status quo will be a competitive disadvantage.”
There are 613 banks operating in the Philippines as of end- September, according to central bank data. Of the number, 41 are universal and commercial banks, 64 are thrift banks, and 508 are rural and cooperative banks.
To be named as a QAB, lenders must secure the endorsement of regulators in its home country and be accepted by offshore authorities where it wants to set up operations.
Based on regional data, ASEAN has a population base of 629 million, with more than a third aged below 20. It is also the third fastest-growing economy in the world next to China and India, according to the ASEAN Secretariat.