Foreign investment in Philippines retail finance

One area which needs foreign investment is in retail finance particularly when there are still many unbanked. And opening rural banks to foreign investments is one way to do this.

BSP Backs Rural Bank Bills

Allowing 60% Maximum Foreign Ownership
June 3, 2012, 9:44pm

MANILA, Philippines — The central bank is supporting the Senate and house bills seeking to allow foreign ownership of rural banks of up to 60 percent.

“We support this initiative which provides the promise of game-changing investments from strong and reputable foreign institutions,” said Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr.

Espenilla, who heads the BSP Supervision and Examination Sector, said the entry of up to 60 percent foreign equity into rural banks is similar to the policy implemented on other bigger banks, specifically Republic Act No. 8791 or the General Banking Act of 2000 which allows foreign ownership of commercial and thrift banks.

Prior to the amendments, foreign ownership in rural banks is banned under the Rural Bank Act of 1992.

House Bill 5360 which has been approved, amended Section 4 of Republic Act 7353 (Rural Bank Act of 1992) and allowed foreign equity of up to 40 percent of the rural bank’s authorized capital stock.

Senate Bill 3089, in the meantime, is also seeking to allow foreign ownership or the entry of non-Filipino citizens in rural banks.

Both the Senate and house bills introduced amendments to RA 7353 to encourage more investments in the smaller rural banks. As of the end of the first quarter, BSP is supervising and monitoring 577 rural banks. Majority of this number have capital concerns and because of its volume, the BSP does not have enough examiners to scrutinize rural banks on a more regular basis.

The author of SB 3089, Senator Edgardo Angara, said the bill is expected to stimulate a “more lively activity among rural banks by creating an environment that is beneficial to foreign investors, local banking patrons and the national economy.”

In the meantime, Espenilla said developments in the rural banking sector including the future entry of foreign equity will ensure growth of the industry. “I think we have fertile ground on which rural banks can continue to blossom into strong, well-managed, professionally run and responsible banks.”

As of the latest data, the rural banking sector has gross total loan portfolio of P110 billion and deposits amount to P113 billion.

But Espenilla still cautions rural bankers of maintaining a well-capitalized industry. “We know that while the system is generally strong, negative perceptions caused by pockets of failure can lead to ripples of uncertainty, whether warranted or not.” As of the end of September 2011, the industry capital adequacy ratio declined by 0.11 percentage point to 18.57 percent but this includes cooperative banks. By itself, rural banks’ CAR stood at 18.81 percent from 19.01 percent end June 2011.

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