Philippine Banks Need Foreign Capital to Thrive, Regulator Saysby
Facing competition as foreign banks set up local branches
Security Bank set an example with sale of 20 percent stake
Wealthy families running some of the largest Philippine banks need to attract foreign capital and know-how if they are to withstand growing competition from overseas lenders, the country’s bank regulator said.
"If they think they can continue to grow at the pace that protects their position in the market using only internal resources, good luck to them," Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla said in an interview in Manila last week. "Banks today with a relatively close ownership may want to take a more open view. Or, they face stagnation, shrinkage."
Philippine banks are facing a new wave of competition from foreign lenders, with Japan’s Sumitomo Mitsui Financial Group Inc. and Singapore’s United Overseas Bank Ltd. among six foreign banks which have received approval to open branches. The banks are entering the market after the government loosened its rules on foreign ownership in 2014.
Some local banks have already heeded the advice to seek foreign partners, with Security Bank Corp. sealing a deal this month to sell a 20 percent stake to Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank.
Espenilla said the Security Bank deal is a good example of the foreign partnerships that others should be seeking, to attract more capital and gain new management skills. The market has become more competitive as the central bank imposes tougher global capital and risk standards, he said.
"Doing the same things may no longer be a valid strategy if you want to continue to thrive," said Espenilla, who oversees regulation of banks and financial institutions.
Listed Philippine banks have on average about 20 percent to 30 percent of their shares in public hands, Espenilla said. The nation’s largest bank by assets, BDO Unibank Inc., is controlled by billionaire Henry Sy, while Bank of the Philippine Islands is controlled by the Ayala family.
Despite the need for foreign partners, Espenilla expressed confidence that Philippine banks can withstand the current global slowdown and market volatility without having to raise new capital.
But he said foreign competition is only likely to increase. The central bank is processing one new foreign bank application and three more are actively interested, Espenilla said.