FOREIGN banks operating in the Philippines are faring well in the local banking scene, as the subsector registered double-digit income growth for 2018, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.
The net profit of foreign banks grew 26.9 percent to reach P12.3 billion last year from their net income of P9 billion in 2017.
This, as foreign banks generated a total operating income of P63.2 billion on account of the net interest income from loans receivables of P43 billion. The cost-to-income ratio of the foreign banks group improved to 64.0 percent, from 66.1 percent in 2017.
“The foreign banks and subsidiaries fared better in 2018 despite the presence of global headwinds and volatilities in the domestic financial market. Aggregate resources expanded, mainly backed up by new deposits generated and fresh funds injected by existing and new foreign players,” the BSP said.
The total resources of foreign banks also expanded by double digits during the year—at 11.2 percent to hit P1.2 trillion as of end-December 2018.
The BSP traced the double-digit expansion to the 61.2-percent increase in the investment portfolio of the foreign banks in the country.
Deposit liabilities remained the principal source of funding by foreign banks, accounting for 59 percent of total resources as of end-December 2018.
“Banking risks were manageable as shown by asset and loan quality indicators,” the BSP also noted.
Foreign banks’ buffer against credit losses in the form of the nonperforming loans coverage ratio was above 100 percent at 179.8 percent during the year.
More to come
Amid the growth of the foreign banking sector in the country in 2018, the BSP said there is more room for expansion for foreign players in the country’s banking sector.
“There is still room to accommodate further foreign bank entry and participation since the aggregate share of FBBs and subsidiaries currently operating in the Philippines remained well below the 40-percent ceiling set under Section 3 of RA No. 7721, as amended by RA No. 10641,” the BSP said.
Under the law, while the entry of foreign banks in the Philippines has been fully liberalized, safety nets were put in place, such that at least 60 percent of the banking system’s total resources shall be controlled by domestic banks which are majority-owned by Filipinos.
At present, the aggregate share of foreign banks in the total assets of the Philippine banking system remained stable at 7.1 percent in 2018. As of end-December 2018, the Monetary Board has approved 12 foreign bank applications since the implementation of the amended Foreign Banks Law of 2014. The Industrial and Commercial Bank of China (ICBC) was the latest addition to the list of foreign banks authorized to operate in the Philippines.
“The number is expected to further increase due to the ongoing Asean Banking Integration Framework [Abif],” the BSP said. “Outside this regional integration initiative, there are more foreign banks that signified interest to establish a presence in the Philippines due to its sound macroeconomic fundamentals and stable growth prospects,” it added.
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So is there any discussion or concern about what happens if this growth in foreign banks approaches 40%? Will domestic banks catch up with the services offered by foreign ones? Will they loosen the restrictions? Is the growth in foreign banks paralleled by growth in foreign investment?