PHL ahead in ASEAN bank sector integration — Fitch

Melissa Luz T. Lopez, Businessworld, Jan. 25, 2017

THE PHILIPPINES has made the biggest jump ahead of the planned banking sector integration across Southeast Asia, Fitch Ratings said, even as it noted that moves in the region are still far from hitting the goal of a unified financial framework in the next three years.

“Member countries of the Association of Southeast Asian Nations (ASEAN) have made slow and uneven progress toward regional banking-sector integration,” the debt watcher said in a statement sent yesterday.

The credit rater was referring to the planned ASEAN Banking Integration Framework (ABIF) that is programmed to be in place by 2020.

The ABIF, first endorsed in December 2014, seeks to allow qualified ASEAN banks (QABs) to “operate freely” across member economies.

Under the framework, the Philippines and the rest of the so-called ASEAN-5 — Indonesia, Malaysia, Singapore and Thailand — should have at least one bilateral deal signed by 2018 before full integration two years later.

But Fitch believes progress towards integration will likely be slow, saying: “Further moves are likely to remain gradual and full regional financial integration looks like a very distant goal.”

The Philippines has made notable adjustments in line with the integration plan, Fitch said, but noted that, region-wide, the developments have been “slow to get off the ground.”

Fitch cited the passage of Republic Act No. 10641 in 2014, which liberalized the local banking sector by lifting the previous limit of 10 foreign banks operating in the Philippines at any given time.

“The Philippines has taken the biggest steps toward banking-sector liberalization, removing the cap on foreign ownership of banks in 2014,” the statement read, noting that local lenders have remained generally healthy.

“The larger Philippine banks have sufficient access to capital and have little immediate need to sell major stakes to foreign investors, but foreign banks have established their own subsidiaries and branches in the country,” the debt watcher added.

Nine foreign banks have secured the approval from the Bangko Sentral ng Pilipinas (BSP) in the last two years to do business here, with at least six more offshore lenders setting sights on the Philippines, BSP Governor Amando M. Tetangco, Jr. said in a recent speech.

In March 2016, Mr. Tetangco signed a bilateral deal with Bank Negara Malaysia former Governor Zeti Akhtar Aziz — the Philippines’ first agreement under the ABIF — with the goal of allowing three QABs from either country to operate in the other jurisdiction. The BSP chief said talks with the Bank of Thailand and Otoritas Jasa Keuangan of Indonesia are also under way with the goal of working them out within this semester, right before Mr. Tetangco ends his second term as central bank governor on July 2.

Fitch said that the Philippines stands to gain from the entry of new foreign players, as it opens up new sources of funding.

“Entry by foreign banks is likely to support investment and economic growth in the near term by helping to fund much-needed infrastructure investment.”

The Philippine government plans to spend “aggressively” on infrastructure up to 2022 in a bid to help spur economic growth to as fast as 8% annually from this year’s 6.5-7.5% target and slash poverty rate to 16% from 21.6% in 2015. —