July 20, 2014

PNoy signs into law the liberalization of foreign bank entry

President Aquino has signed into law a bill that would allow the full entry of foreign banks into the country. RA No. 10641 will amend RA No. 7721, which previously limited the foreign bank ownership of local banks to 60%.

The new law will then allow foreign banks to own up to 100% of local banks. The new law is expected to prepare the country for the possible entry of foreign banks once ASEAN integration starts next year.

Our take: The bill was approved by the Lower House last May and it took a little over two months for both the Senate to approve its own version and the President to enact the bill into law. This should deliver a strong message that the country is still serious about pursuing reforms and economic restructuring. We previously noted that the entry of foreign banks would increase the level of competition in the banking sector and therefore force local banks to improve their scale and efficiency.

Moreover, it can spark another wave of mergers and acquisitions within the sector, as foreign banks and the bigger local banks would become prospective acquirers in order to protect their competitive position. – WealthSec