Pandemic halts foreign bank applications – BSP

Published January 25, 2021, 6:00 AM

by Lee C. Chipongian

The COVID-19 pandemic has put on hold foreign banks’ plan to establish local units or branches in the Philippines.

“As of now, no application to establish foreign bank is received by the FSS (Financial Supervision Sector),” according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier, who heads the FSS.

Before the global pandemic was declared in March last year, there were at least three foreign banks based in Hong Kong, South Korea and Indonesia that were in the preparation stage to set up local branches here.

Since 2014, when Republic Act No. 10641 or An Act Allowing the Full Entry of Foreign Banks in the Philippines amended the previous foreign bank entry law, a total of 12 foreign banks were allowed to set up bank branches in the country.

 These foreign banks are mostly regional banks from Taiwan, South Korea and Japan.

The application from the Indonesian bank is tied to the BSP’s bilateral agreements with the Financial Services Authority of Indonesia (Otoritas Jasa Keuangan or OJK) for the ASEAN financial and banking integration.

The BSP has three ASEAN Banking Integration Framework (ABIF) negotiations with Malaysia, Thailand and Indonesia. The agreement contains the guidelines of each country’s Qualified ASEAN Banks (QABs), an integral part of the ABIF, and the previous Indonesian bank application was under the guidelines of the QABs.

  The timeline was that supposedly by 2020 a central bank has concluded at least one bilateral accord with an ASEAN counterpart under ABIF.

 QABs are banks with global banking standards that follow strict operational guidelines as set by bilateral agreements between home and host countries.

BSP Governor Benjamin E. Diokno said earlier that there were interests from European banks to set up shop here but in terms of policies, there were big differences in banking regulations and it will be that much harder for them to locate in the Philippines.

 Foreign bank entry in the Philippines was expanded seven years ago – previously it was limited to only 10 – to raise the industry’s new technology and efficiency that these foreign banks are expected to contribute, as well as the enhancement of human capital skills, and to reduce the costs of operations.

 As of end-2020, the BSP supervises 20 foreign banks, of which 18 are branches of foreign banks and two operate as subsidiaries of foreign banks. Of the 46 big banks in the Philippines or universal and commercial banks, six are foreign bank branches with universal and commercial banking license, and 18 have commercial banking license only. US-bank Citibank NA is the largest foreign bank in the country in terms of capital, followed by British bank HSBC, Malaysian bank Maybank Philippines, Japanese bank Sumitomo Mitsui Banking Corp., and Chinese bank CTBC Bank (Philippines).

As part of COVID-19 regulatory relief, the BSP has allowed the branches of foreign banks in the Philippines to continue to use twice the level of net worth for its single borrower’s limit (SBL) until end-2021.

Diokno said in December that extending the period by another year will “help boost lending in support of businesses and sectors, and pump prime the country’s economic growth and post-pandemic recovery” as well as diversify credit exposures, particularly in financing big ticket projects.

The extension will allow foreign bank branches existing prior RA 10641 to finance big infrastructure projects such as those listed under the government’s “Build, Build, Build” program.

The extended transitory period will also provide the foreign bank branches with ample time to re-assess their credit exposures and implement measures to ensure compliance with the SBL regulations.