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MB Releases Guidelines on Further Entry of Foreign Banks

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—The Monetary Board (MB) approved the implementing rules and regulations (IRR) of Republic Act (R.A.) No. 10641. The new law provides for the further entry of foreign banks into the Philippines and thus amends R.A. No. 7721, which was passed into law in May 1994.

With the approval of the IRR, additional foreign banks can now apply to operate in the Philippines either as a branch or as a wholly-owned subsidiary. In addition, the new law allows foreign banks to acquire up to 100 percent of the voting stock of an existing domestic bank. This is an increase from the 60 percent cap under the previous law (R.A. No. 7721).

The IRR reflects the enhancements in the entry criteria prescribed by R.A. No. 10641. Instead of a bank’s ranking by size either globally or in their own jurisdiction, the new law focuses on the demonstrated expertise of a potential entrant as an established, reputable and financially sound bank.

The MB shall also consider strategic relationships and reciprocity rights in accepting the application of a foreign bank entrant. In addition, foreign banks interested to enter the Philippines under R.A. No. 10641 are required to be widely-owned and publicly-listed in their home country.

“We are very appreciative of the efforts of our legislators to pass into law R.A. No. 10641 and the BSP is quite happy to now issue the IRR to execute this law,” BSP Governor Amando M. Tetangco Jr. commented.

Governor Tetangco further noted that “implementing the new law comes at an opportune time because the foreign banks can be vehicles for foreign direct investments into the Philippines at a time when we have attained investment-grade rating while also preparing further for regional integration.”

Recognizing the added economic contributions by foreign banks, R.A. No. 10641 allowed foreign banks to control up to a combined 40 percent of the total assets of the banking system. This is 10 percentage points higher than the previous 30 percent limit.

With the expected increase in the share of total assets under the management of foreign banks, the IRR reflects the authority of the MB to adopt necessary measures to ensure that the 60 percent domestic-controlled proportion is preserved. Such measures shall consider vested rights and non-impairment of contracts that will be non-discriminatory to existing foreign banks.

The minimum capital requirements applicable to foreign bank branches have been aligned with that of domestic banks of the same category. However, foreign banks entering under R.A. No. 10641 shall comply outright with the new capital requirements as well as with the prescribed minimum capital ratios.

Similar to the provisions under Republic Act No. 10574 (An Act Allowing The Infusion Of Foreign Equity In The Capital of Rural Banks), foreign banks are also allowed to bid and take part in foreclosure sales of real property mortgaged to them.

Foreign banks can avail of any of the three modes of entry into the Philippines. At any time, however, they must only avail of one mode of entry subject to compliance with all the requirements.

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