Bank of China to acquire local bank

Bank of China (BOC), which was recently granted a branch license to operate in the country, plans to acquire a local bank by early next year, according to BSP Gov. Rafael Buenaventura.

However, he said BOC intends to focus more on international trade financing for the time being.

"BOC is coming in (to the country) under a reciprocity agreement. The bank will zero in on financing international trade. But it is seriously considering to come in next year to acquire a local or domestic bank," he said.

BOC was chosen to occupy the slot vacated by Development Bank of Singapore. As part of the reciprocity agreement, Metropolitan Bank and Trust Co., the country's largest universal bank, will be allowed to operate a branch office in Shanghai, China.

It was learned that if BOC pursues its plan to acquire 100 percent of a local bank, it has to surrender its branch license, the same thing that DBS did when it bought a substantial stake in the Bank of Southeast Asia.

Since the signing of the amendments to the General Banking Act (GBA), Buenaventura said existing foreign banks will have the option to buy into one commercial bank or continue operating as a branch office.

'They (15 existing foreign banks) have an option to buy out existing banks or dilute them by infusing additional capital," Buenaventura said.

However, he explained that under the new GBA, a foreign bank can own only one commercial or universal bank. But this one entity can have several subsidiaries like other locally incorporated companies.

The advantage of owning a local bank rather than operating a branch license is that foreign banks will have more branches to operate.

Under Republic Act 7721 or the law Liberalizing the Entry of Foreign Banks in the country implemented in 1994, foreign banks that are granted a branch license will have to put up not more than six branches.

Of these six branches, the BSP has to identify the location of the three branches and the three other branches should be strategically situated.

Buenaventura said there are already a number of foreign banks that have expressed keen interest in taking advantage of the new banking law. Most of these foreign banks are located in Europe and Asia because most of the American financial institutions already have a presence here like Citibank N.A., Chase Manhattan and Bank of America.

The BSP chief said that under the new law, the moratorium on granting new bank licenses would stay for another three years.