FOREIGN BANKS IN THE PHILIPPINES
description
Transcript of FOREIGN BANKS IN THE PHILIPPINES
The passage of the law R. A. No. 7721, otherwise known as “An Act of Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines” in May 1994, encouraged greater foreign participation in the domestic banking system by allowing foreign banks to operate in the Philippines
FOREIGN BANKSrefers to a bank of banking corporation
formed, organized and existing under any foreign law
entry improves financial intermediation by increasing competition, improving stability and enhancing banking sector efficiency
participate in the domestic banking system by establishing foreign subsidiaries, branches or taking over existing domestic banks and other established foreign banks
MODALITIES OF FOREIGN BANK ENTRY
Foreign bank entry is the process by which foreign banks set up operations in a host country.They adopt a variety of institutional structures (including representative offices, branches, subsidiaries and joint ventures) and these different modes of entry tend to entail varying degrees of commitment to provide banking services to host country markets.
A. REPRESENTATIVE OFFICEServices the needs of their corporate
customers that undertake activities abroadEnables the parent bank and its client to deal
with a variety of commercial and business transactions that relate to foreign market
Handles trade credit operationsAllows the parent bank to engage in banking
activities such arranging international private debt and equity placements between borrowers in the host country and lenders in the source country
Representative Office
Does not handle retail banking operations
Serves as a liaison office which deal directly with the public by promoting and giving information about the services offered by the foreign bank
Does not transact banking business such as deposit-taking , issuance of letters of credit and foreign exchange trading
B. BRANCHIs an overseas office of a bank
incorporated in a foreign countryIs typically involved in the wholesale
deposit and money markets, and arranges loans for both local and foreign agents and deal in the capital markets
Establishment is more costly than a representative office because this mode of entry allows the foreign bank to operate in the local money and capital market
C. BANK SUBSIDIARYIs often used to enter the retail banking
marketsIs separately incorporated from the parent
foreign bank, whose financial commitment to the subsidiary consist of the capital invested
Is allowed to perform the same functions as a domestic bank and enjoys the same privileges and limitations imposed on domestic banks of the same category
Limitations of its operation, subject to SBL, required capitalization
D. ALLIANCE OR JOINT VENTUREIs the preferred mode of foreign bank
entry when foreign bank lacks, but wishes to acquire specific knowledge about domestic banking market condition
Involves taking minority stakes in existing domestic banks and involvement in the management of domestic bank by the foreign bank is normally low
Example is joint venture of a bank and insurance company
FACTORS BEHIND THE INCREASING ROLE OF FOREIGN BANKS IN EMERGING MARKETS Globalization of financial servicesRemoval of barriers to foreign bank
entryWide availability of information
technology
ARGUMENTS FOR FOREIGN BANK ENTRYForeign banks improve quality, pricing,
and availability of financial servicesForeign bank presence increases
amount of funding available to domestic projects by facilitating capital inflows
Foreign bank presence improves financial system infrastructure
ARGUMENTS AGAINST FOREIGN BANK ENTRYForeign banks serve only the most lucrative
domestic markets or customersForeign banks may contribute to instability of
aggregate domestic bank creditFinancial services represent a strategic
industry best controlled by domestic interestsConcerns over multiple challenges to
supervision raised by complex financial institutions active in a number of jurisdiction
Qualification Requirements for Foreign Banks Entry1. FX bank must be widely owned and
publicly listed , unless more than 50% of its capital stock is owned by the government of its country of origin
(widely owned if it has at least 50 stockholders without any stockholder owning more than 15% of its capital stock)
2. FX bank , as of date of application, be among the top 150 banks in the world or the top 5 banks in its country of origin
3. FX bank must be in compliance with capital requirements of its country of origin