Foreign banks see the Philippines as an attractive destination for expansion because of the high potential for growth in its formal lending sector.
Deutsche Regis Partners Managing Director for Research Rafael Garchitorena said the Asean is the region that many banks are looking to establish and strengthen their presence in because of its good demographics and strong long-term growth potential.
“With the Asean free trade, there should be lots of opportunities for cross-border finance and investment. This is particularly true for the Philippines, where foreign companies are looking to invest in either manufacturing capacity or infrastructure projects,” he told the BusinessMirror.
Garchitorena said so-called loan- demand drivers remain robust this year, and that banks should see strong double-digit loan growth down the line.
“I’m sure, too, that foreign banks can see the potential for increased penetration of formal lending in the Philippines. Loan-to-GDP [gross domestic product] is still only around 40 percent. Household bank debt-to-GDP is still sub-10 percent. And the financial system is very liquid, with loans-to-deposits at below 70 percent,” he added.
“And despite my concerns that recent regulation could limit return-on -equity [ROE], foreign banks may be willing to accept these ROE levels, given the high growth potential here,” Garchitorena said. He also said that, in the past, one of the key constraints for foreign banks was the inability to foreclose on land, but a new law fixes that somewhat.
The foreign ownership of Philippine banks has been relaxed, with the passage of a new law allowing a 100-percent ownership earlier last year.