Even without perks, Bangko Sentral ng Pilipinas (BSP) officials said the interest of China’s biggest bank in Philippine banks would not be the last, as the local financial system emerges as one of the most attractive in the region.
The BSP expects more inquiries from other foreign banks wanting to acquire Philippine banks or set up operations in the country.
According to BSP Deputy Governor Nestor Espenilla, foreign banks are aware of the attractive prospects in the Philippine financial sector once the prevailing turmoil settled down.
Espenilla said the BSP expects sustained interest in the banking industry despite the expiration of the law that allowed foreign banks to operate in the country without local ownership.
Espenilla said that despite the pessimism over the difficulties of matching foreign financial institutions with the right local partner, the upside to such partnership could overcome these concerns.
The law allowing foreign banks to fully own their Philippine operations lapsed earlier this year, ending the liberalization of foreign bank entry into the Philippine banking industry.
According to the BSP, however, joint ventures between foreign banks and local banks are still possible and need not hinder foreign banks for establishing their presence in the Philippine financial system.
“Their concern now is finding the right local partner,” Espenilla said. “That might sound difficult at the outset but it doesn’t have to be especially if the prospects are good.”
Already, the International Commercial Bank of China (ICBC) had made exploratory inquiries into the possibility of buying into a Philippine bank, expressing particular concern over taxation.
Earlier, the BSP said Middle East funds led by the Abu Dhabi Investment Authority, are also eyeing investments in the country’s Islamic banking industry, tourism and infrastructure sector.
After meeting with investors in Dubai earlier this year, BSP Governor Amando M. Tetangco Jr. said there was particularly strong interest among government-owned investment funds to invest in the Philippines.
“We didn’t even dwell on discussing our macro-economic conditions because they immediately wanted to know what areas they could put their funds into,” said Tetangco.
According to Tetangco, state-owned investment funds want the Philippine government to identify areas that they could explore in order to take advantage of the country’s economic upswing.
Foreign banks in the country sustained record-high profits in 2006 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 detailed this in the Annual Report on the Implementation of Republic Act 7721 (An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes).
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 in huge trading income which soared by 180.6 percent and propelled the industry’s non-interest income by 48.3 percent.