BSP: Bank lib has achieved objective

The Bangko Sentral ng Pilipinas (BSP) said the time-bound liberalization of foreign bank entry into the Philippines has achieved its goals and need not be restored.

The BSP said yesterday that although banking reforms were far from over, the entry of wholly-owned foreign banks into the country has successfully injected the level of competition needed by the industry.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said allowing foreign banks into the country had changed the character of the Philippine banking industry for the better.

Wholly-owned foreign banks were allowed entry into the country under Republic Act 7721 known as An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes.

The law, however, was time-bound and lapsed in June this year.

“There was a dramatic increase in competition and foreign banks spurred local banks into action that brought them to the level of global standards,” Tetangco said. “In that sense, the law has already achieved its objectives although having said that, the job is not complete.”

Tetangco said there was no rush for the BSP to seek a renewal that would continue to allow wholly-owned foreign banks into the country aside from the 10 banks that came in when the law was in effect.

“As we said before, foreign banks can still come in but through other modalities,” Tetangco said.

The only clear casualty of the law lapsing this year was the planned sale of the government-owned Al Amanah Islamic Bank which had attracted several Middle Eased-based interests who preferred to own the bank 100 percent.

After the failure of the public bidding last May, finance officials admitted that the privatization of the country’s only Islamic bank would proceed albeit with new limitations.

The privatization of Al Amanah would still continue but with the difference that all the foreign interested parties would now have to look for local partners.

According to Tetangco, however, there was little need to go through the legislative process of enacting a new law to allow continued unfettered entry of foreign banks into the country since there were other options open to them.

Since they were allowed in, foreign banks in the country sustained record-high profits especially in 2006 when margins rose from trading government securities amidst declining interest rates and from high-margin but low-risk consumer lending.

The annual report submitted by the BSP to Congress showed that foreign banks yielded a net income after tax (NIAT) of P12 billion, up 37.7 percent in 2006 from P8.7 billion in 2005.

The BSP said in the report that strong trading gains allowed banks to rake in profits as well as the resumption of lending activities.

The BSP said the general decline in interest rates on debt securities and the substantial foreign exchange transactions translated to huge trading income which soared by 180.6 percent and propelled the industry’s non-interest income by 48.3 percent.