By Melissa Luz T. Lopez, Reporter

Foreign banks eye partnerships

Posted on July 15, 2016

FOREIGN BANKS looking to enter the Philippine market now see partnerships with local lenders as a more strategic way to set up shop here, a senior central bank official said, as it ensures a wider reach among local clients.

“What is happening more is not new entrants but new partnerships. They are looking for possible partnerships -- there is a shift in terms of approach,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr. told reporters late Wednesday when asked about the strategy of foreign banks towards the Philippines.

The BSP has approved the entry of eight new foreign banks since the passage of Republic Act (RA) 10641 or An Act Allowing the Full Entry of Foreign Banks in the Philippines in July 2014, which opened up the sector to more offshore players.

Prior to the amendments, only 10 foreign lenders can come here, with a new entity allowed to enter only if one of the accredited banks pull out.

Two years since the law was liberalized, Mr. Espenilla said offshore players have found it more viable to enter the Philippine market by tapping local banks instead of starting from scratch, as it allows them direct access to Filipino clients.

“One rationale for that is that if you want to reach a domestic market -- especially retail market -- you need to be familiar with the local market, so the best way to do that is to find a partnership with a local bank,” Mr. Espenilla said.

“If you are going to come in as a branch to begin with, your presence is limited so the tendency as a branch is basically to cater to own nationals and also corporate clients. But if you want a more ambitious play, you want more market penetration so partnership is better.”

Mr. Espenilla said another Asian bank is in the process of completing regulatory requirements with the BSP.

The foreign lenders that got the BSP’s green light to operate in the Philippines are the Japan-based Sumitomo Mitsui Banking Corp., South Korea’s Industrial Bank of Korea and Shinhan Bank, Taiwan-based Cathay United Bank and Yuanta Commercial Bank Co. Ltd, and the Singapore-based United Overseas Bank Ltd.

This year, Korea’s Woori Bank has entered the local market by partnering with the Gaisano-led Wealth Development Bank Corp., a thrift lender which targets to serve both Korean tourists and expats here.

In June, Taiwan’s First Commercial Bank also got the central bank’s approval to set up a branch in Manila.

Earlier, Mr. Espenilla said it was likely for Asian banks to venture to the Philippines in light of a shared regional market.

“We have seen bank M&A [mergers and acquisitions] activity which is great in increasing financial penetration in the Philippines. I think the economy is still underbanked on so many levels, there’s still some room for a bit of ramp up in credit and that in turn should help more inclusive growth,” HSBC economist Joseph F. Incalcaterra also said in a media briefing yesterday.

International credit raters have said that the Philippine banking system remains sound and stable, as banks remained well-capitalized against any financial shocks as supported by the country’s strong fundamentals and rapid economic growth.