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Full foreign bank entry, (almost) five years in

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THE MALAYSIAN lender CIMB Bank is positioning to be the first “all-digital, mobile-first” bank in the country. CIMB Philippines launched its mobile application OCTO, to which local users can now open a deposit account without going to a physical branch. — WWW.CIMBBANK.COM.PH

UP UNTIL May 1994, no foreign bank was permitted to enter the country apart from four foreign lenders that were already operating at that time. In February 1995, the Bangko Sentral ng Pilipinas (BSP), under Republic Act (RA) No. 7721, approved the application of 10 out of 22 foreign banks that had expressed interest. Under RA 7721, only when one of the 10 banks pulls out could another offshore lender enter the Philippine financial system.

RA 10641, which was signed by then-President Benigno S. C. Aquino III in July 2014, removed that limit, allowing foreign banks to invest in subsidiaries, buy into existing local banks or set up branches, so long as domestic banks — or those majority-owned by Filipinos — own at least 60% of the resources or assets of the Philippine banking system.

Since then, the BSP has approved 12 foreign bank applications. The latest to set up operations is Industrial and Commercial Bank of China Ltd., the first Chinese bank to do so in recent years after the Bank of China’s entry in 2002.

As of March 2019, there are 29 offshore lenders operating in the Philippines, with 24 of them operating as foreign bank branches while the remaining five are foreign bank subsidiaries.

BusinessWorld’s banking report covers 26 of those foreign lenders, of which they hold a combined five percent of the Philippine banking industry’s total loan portfolio and 7.3% of its total assets as of the first quarter of this year.

This means that the economy can still accommodate more foreign banks if it wants to with the foreign banks’ aggregate share remaining well below the 40% asset ceiling.

“The BSP welcomes foreign players to promote healthy competition in the banking sector and at the same time attract additional foreign direct investments, international expertise in customer service and financial technology innovation,” said BSP Deputy Governor Chuchi G. Fonacier in an e-mail to BusinessWorld.

Ms. Fonacier said that the Philippine economy’s “strong macroeconomic fundamentals” as well as the steady growth of its banking system remain to be the “sweet spots” that make the Philippines an attractive destination for investments and foreign bank entry.

Affirming this, Ms. Fonacier said, were two things: the upgrades of the Philippines’ banking industry country risk assessment (BICRA) score in February 2019 that is “anchored on the strengthened supervisory powers and monetary functions of the BSP” and the country’s long-term sovereign credit rating earlier this month.

S&P upgraded the Philippines’ BICRA score to group 5 from group 6, citing “improvement in the institutional framework of the country’s banking system” with enactment of RA 11211 of which key features include providing full legal support for central bank officials and employees as they carry out their mandate of inspecting and penalizing banks and other supervised financial businesses.

Meanwhile, S&P raised the Philippines’ long-term sovereign credit rating to “BBB+” from “BBB” — just a step away from a single “A” tier rating. Furthermore, the rating was also assigned a “stable” outlook, indicating the country is likely to maintain the grade in the next six months to two years as the economy is expected to remain strong over the medium term.

“Other growth opportunities include the integration of the ASEAN economies, huge demand for infrastructure projects/business developments, and financial inclusion,” Ms. Fonacier said, referring to the Association of Southeast Asian Nations.

Malaysian lender CIMB Bank is among those who had expressed interest in entering the Philippine market.

“The Philippines has definitely been a potential market for CIMB Group even before the entrance of foreign banks has been liberalized in the country,” said Vijay Manoharan, Chief Executive Officer of CIMB Bank Philippines, Inc. (CIMB Philippines).

CIMB has long been eyeing to venture into the Philippine market as it previously tried to acquire a controlling stake in San Miguel Corp.’s Bank of Commerce back in 2012.

The Malaysian-based lender formally launched its banking operations in the country last February, more than a year after it received the central bank’s approval.

Mr. Manoharan cited economic indicators that made the Philippines an attractive market which include its fast-growing economy, high Internet penetration, and a rising electronic commerce (e-commerce) ecosystem.

“The growing presence of online aggregators, delivery services and related platforms suggests a demand for online services and solutions in the market. In line with our product proposition, the top two projected payment methods in the e-commerce space are e-wallets and bank transfers by 2023,” Mr. Manoharan said.

“Companies from other industries are continuously building and developing new and innovative products that cater to providing convenience to the market, and it’s about time that the banking industry in the Philippines adapts to the digital and mobile lifestyle of the market,” he added.

The Malaysian banking giant is positioning to be the first “all-digital, mobile-first” bank in the country. Last Dec. 2018, CIMB Philippines formally launched its mobile application OCTO, to which local users can now open a deposit account without going to a physical branch.

“Our customers do not need to look for a physical bank branch to have a basic savings account and transact,” Mr. Manoharan said.

In contrast to CIMB’s recent entry, Citibank, N.A. (Citibank Philippines) has been in the Philippine banking scene for more than a century.

“In its 117-year history in the Philippines, Citi has encountered and successfully navigated several economic cycles. This highlights not only Citi’s resilience but also its long-term commitment to the Philippines,” said Citibank Philippines’ Chief Executive Officer Aftab Ahmed.

Mr. Ahmed noted that the bank’s evolution in the Philippines has been “multi-faceted.”

“In 1990, Citibank launched its first Philippine-issued credit card and pioneered wealth management for its consumer clients. In 1994, we became the settlement bank for the Philippine domestic dollar transfer system and introduced Citiphone banking,” Mr. Ahmed said.

“Our goal in the Philippines has always been to leverage our global network as well as our local, regional and global technology platforms to deliver superior financial services and solutions to our clients. Today, Citi Philippines has more than 8,000 employees and that number continues to grow,” he added.

BENEFITS
BSP’s Ms. Fonacier underscored RA 10641’s importance as it paved the way for the entry of more foreign direct investments as well as employment opportunities.

“The establishment of foreign banks’ presence in the Philippines will also increase the banking system’s ability to compete in the globalized environment to better manage the growing economy’s cross-border commerce,” Ms. Fonacier said.

“The full liberalization on the entry of foreign banks is likewise expected to contribute to the promotion of healthy competition in the banking industry, resulting in greater market penetration and more efficient delivery of financial products and services. Moreover, it is expected that there will be sharing or exchange of more quality management and governance practices as well as technology innovations and usage contributing to the overall operational efficiency of banks,” he added.

For technological innovations, this may appear to be case judging by CIMB’s and Citibank Philippines’ massive adoption of digital technology in their product offerings.

“[I]nnovation is our lifeblood,” CIMB Philippines’ Mr. Manoharan said.

“[I]t is something that we try to do constantly based on the market needs and feedback that we get from our customers. We do have services and products that we will be launching and we are very excited to tell everyone about them,” he added.

CIMB Philippines currently offers two types of savings accounts named the Fast and Fast Plus accounts, which let customers open an account through its OCTO mobile app within 10 minutes.

The savings accounts come with a Visa-powered debit card to allow withdrawals from 20,000 Bancnet, Visa and Visa Plus automatic teller machines (ATM) in the country, on top of two million Visa ATMs worldwide.

CIMB Philippines also offers an UpSave account which offers a yearly interest rate of 2.5%.

CIMB also offers personal loans wherein customers get instant initial approval and next day disbursement to any local savings account.

For Citibank’s Mr. Ahmed, bringing innovation to the marketplace is an “ongoing goal.”

“We are committed to building digital capabilities which will enable us to acquire, engage, and service clients on enhanced basis through digital channels to enhance our accessibility and to make it more convenient for our customers to access our services,” he said.

Last year saw Citibank has launched its updated Citi Mobile App, which helps its clients manage outstanding balances, track transaction details and rewards points, as well as pay bills.

“We remain exceptionally optimistic and bullish about the growth opportunities in the country and look forward to continuing to grow and invest in the Philippines. We are committed to the Philippines and its future,” said Citibank’s Mr. Ahmed. — Lourdes O. Pilar





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