Foreign banks now allowed full entry in the Philippines

James Ryan Jonas

On July 18, 2014, President Benigno Aquino III signed into law Republic Act 10641, allowing more participation of foreign banks in the Philippine banking industry.

RA 10641 (“An Act Allowing the Full Entry of Foreign Banks in the Philippines”) amends the 20-year old Republic Act 7721 (“An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines”) to effectively liberalize further the domestic banking sector.

Highlights of RA 10641

Among the salient features of RA 10641 are:

1. Under the old law, foreign banks are allowed to operate in the Philippines only by acquiring, purchasing or owning up to 60% of the voting stock of an existing bank. Under the new law, foreign banks are now allowed to:

  • acquire, purchase or own up to 100% of the voting stock of an existing bank;
  • invest in up to 100% of the voting stock of new banking subsidiary incorporated under the laws of the Philippines; and
  • establish branches with full banking authority

2. Only established, reputable and financially sound foreign banks shall be allowed entry. The law requires the foreign bank applicant to be publicly-listed in its country of origin, unless the bank is owned and controlled by the said country or sovereign state.

3. The law still provides safety nets by requiring majority of the banking resources to be owned by domestic banks. The law requires at least 60% of total banking resources to be in the hands of domestic banks majority owned by Filipinos.

4. Approved foreign banks must permanently assign capital amounting to not less than the minimum capital required for domestic banks of the same category.

5. The foreign bank branch may open up to five sub-branches, as may be approved by the Monetary Board of the Bangko Sentral ng Pilipinas (BSP).

6. The Monetary Board is also given the power to suspend the further entry of foreign banks under any or all of modes of entry as warranted by the country’s interest.

Senators Sergio Osmeña III and Senator Cynthia Villar co-authored the bill in the Senate.

The law is said to be in response of the Philippines to the proposed ASEAN economic integration, with the ASEAN Banking Integration Framework (ABIF) set to take force in 2020.

Under the ABIF, qualified ASEAN banks can operate within ASEAN jurisdictions on equal terms as domestic banks of that jurisdiction subject to certain prudential and governance standards.

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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.