PH not ready for Asean financial integration

Posted at 02/25/14 7:32 AM

MANILA - The Philippines financial system would still have to go through a lot of reforms to be able to fully reap the benefits of the Association of Southeast Asian Nations (Asean) financial market integration come 2020, a Bangko Sentral ng Pilipinas (BSP) senior official said on Monday.

In a forum in Makati City on the readiness of the Philippines for regional integration, BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said that although Asean members have already made “achievements” toward the goal of financial markets integration, the country has specific challenges to address in order to enjoy the benefits and opportunities of a financially integrated region.

“The Asean goal for 2020 is for a semi-integrated market and not full liberalization. We want a fully integrated market, but we realized that initial conditions and the readiness of Asean member-states will not be able to yield to that kind of desired outcome. We want to be more realistic and achieve what we can achieve,” the deputy governor said.

As such, Guinigundo—who also sits as one of the country’s representatives to Asean banking and finance institutions—said one of the basic issues in the country in terms of contributing to the integration is the liberalization and the flexibilities of current regulations. He also said the country’s banking system pales in comparison in terms of the size and magnitude of the assets and capital base of other banks in the region.

He disclosed that compared to its peers in the region, the country has the lowest provision for foreign investor exposures.

In particular, Guinigundo cited that the 60-percent foreign ownership cap in the country is low compared to the 99 percent in Indonesia. He also said there is “no hard limit” to foreign ownership in Malaysia and in Singapore, and while there is a 50-percent cap in Thailand, there is a “flexibility clause” that would allow foreign ownership beyond 50 percent on a “case-by-case” basis.

“In other words, we still have a long way in terms of providing offers to other members of Asean,” he said.

Just last week, the central bank disclosed that it is lobbying Congress for an amendment to the foreign bank law in the country. The BSP’s statement said their proposal pushes for a further liberalization of the entry of foreign banks into the country.

Aside from foreign companies’ entry into the Philippines, Guinigundo also said the current size of the Philippines banking system will be “a challenge” for the country in facing financial market integration.

He said the total assets of the entire Philippines banking system is only equivalent to one big bank in Malaysia. He also said the combined assets of the three largest banks in the country is only as big as one bank in Thailand.

Meanwhile, in terms of capital base, Guinigundo said the total capitalization of the entire Philippines banking system is about the same size as one Singaporean bank.

“If we only look at the absolute values, our banks will pale in comparison with the other countries in Asean,” Guinigundo said.

However, Guinigundo also said the smaller size of Philippines banks in terms of assets and capital base does not necessarily translate to a weaker banking system.

He said that in terms of the capital adequacy ratio (CAR), or the percentage of capital to risk-weighted assets, the Philippines banking system is “more than adequately capitalized” compared to its peers in the region.

In particular, Guinigundo said the 18.89-percent CAR of the Philippines stands out compared to the 12.1 CAR of Malaysia, 16.5 CAR of Thailand and the about 16 percent CAR of the biggest banks in Singapore.

The central bank deputy governor also said that he sees “significant progress” in terms of gearing up for the integration and said the Philippines is on track to meeting its commitments to the regional institution.

Among the strategic considerations of the Philippine banks to prepare for the integration, according to Guinigundo, include the expansion of operations to cover the bases in the country, the enhancement of risk management and preserving the competitive advantage of local banks to foreign banks.

Guinigundo also said the BSP will continue to “lead initiatives” that will ensure that local banks will get maximum benefits to the integration and that will manage risks brought about by such regional goal.