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Annex A



(An Act Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines
and for Other Purposes)


The passage of Republic Act (RA) No. 7721 in 1994 ushered in the further opening of the
Philippine banking system to foreign participation. Under the said law, foreign banks may
operate in the Philippines through the following modes of entry: (i) by establishing branches
with full banking authority; (ii) by investing in up to 60 percent of the voting stock of a new
banking subsidiary; and (iii) by acquiring up to 60 percent of the voting stock of an existing
domestic bank. Under this framework, a qualified foreign bank may own or control up to
60 percent of the voting stock of only one domestic bank or new banking subsidiary.
Meanwhile, foreign individuals and non-bank corporations may invest singly up to 40
percent of the voting stock of an existing domestic bank. The law prescribes that 70 percent
of the total resources of the banking system shall be controlled by domestic banks.


A survey on the effects of foreign bank entry into the Philippine banking system was
conducted in 20131. The survey aimed to determine the extent to which foreign banks are
able to achieve the policy objectives embodied in Section 1 of RA No. 7721, which include
the following: (i) attract foreign investments and serve as channels for the flow of funds and
investments into the economy to promote industrialization; (ii) encourage, promote and
maintain a stable, competitive, efficient and dynamic banking and financial system;
(iii) contribute to the alleviation of unemployment in the country; and (iv) provide a wider
variety of financial services to Philippine enterprises, households and individuals.

There were 19 foreign bank branches and subsidiaries (FBBs) operating in the country as of
end-year 2013 composed of four foreign bank branches originally granted access into the
country prior to the 1994 liberalization, 10 foreign bank branches and five foreign bank
subsidiaries that entered via Republic Act No. 7721. The share of foreign banks in total
assets of the Philippine banking system as of end-December 2013 slightly dropped to
10.4 percent from 11.8 percent, which was less than half of the 30 percent ceiling
prescribed under Section 3 of the Foreign Banks Liberalization Act.

Results of the survey showed that FBBs operating in the Philippines continued to
sponsor/participate in various economic and trade activities wherein business potentials of
2013 marks the last year of implementation of the RA 7721

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the country were showcased and disseminated to attract additional investments and bolster
relation with other countries. Moreover, FBBs continued to introduce new banking/
financial technology and support systems on both front-end and back-end operations to
enhance service delivery and ensure customer satisfaction. Included among these were
systems to support credit and lending activities, payment and remittance, fund transfer,
clearing and settlement, treasury operations, accounting and financial reporting, and
information storage/retrieval. These motivated domestic banks to increase their efforts in
improving the quality and availability of their banking services to be at par with foreign
Likewise, FBBs also invested in human resources development to support their operations in
the country. As of end-year 2013, a total of 1,631 seminars and trainings were attended by
Filipino officers and employees. Furthermore, FBBs also continued to support the financing
needs of local residents, companies and the Philippine government. In 2013, the FBBs had
financed loans amounting to over USD0.8 billion and syndicated over USD6.99 billion
domestic borrowings.


(An Act Allowing the Full Entry of Foreign Banks in the Philippines, Amending for the
Purpose RA No. 7721)


The RA No. 10641 was signed into law in July 2014, allowing more foreign banks to operate
in the country without constraints on foreign ownership, among other liberalization

Under the new law, foreign banks can now own up to 100 percent (from 60 percent) of the
voting stock of an existing domestic bank or a new banking subsidiary incorporated in the
Philippines. In recognition of the added economic contributions by foreign banks, their
aggregate share in the banking system was also increased from 30 percent to 40 percent.
With the expected increase in the share of total assets under the management of foreign
banks, the Monetary Board (MB) shall 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

Meanwhile, 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 immediately comply with the new capital requirements
as well as with the prescribed minimum capital ratios.

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

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Based on a survey conducted on the effects of foreign bank entry into the Philippine banking
system for 2018, the FBBs remained committed in their efforts to support the growth of the
Philippine economy as they continued to facilitate trade transactions between the
Philippines and other countries in 2018. These banks likewise sponsored or participated in
various economic and trade activities where business potentials of the country were
showcased and disseminated to attract more foreign investments to the Philippines.
Moreover, the FBBs helped to strengthen ties with other countries to bridge potential
partnership between foreign and local corporations. Further, FBBs continued to invest
substantially in human capital in the country through the conduct of web-based trainings
and seminars on the latest developments/trends in banking and finance.


The strong macroeconomic fundamentals of the country and the steady growth of the
banking system encourage the foreign banks to establish presence here2. Other growth
opportunities include the integration of the ASEAN economies, huge demand for
infrastructure projects/business developments, and financial inclusion.

Meanwhile, the foreign bank liberalization helped the country post record high net foreign
direct investments (FDI) of USD10.3 billion in 2017, albeit the 2018 FDI full-year data was
lower at US$9.8 billion.

Since the implementation of R.A. No. 10641 through the issuance of BSP Circular No. 858
dated 21 November 2014, the Monetary Board has already approved 12 foreign bank
applications from (China [1], Japan [1], Malaysia [1], Singapore [1], South Korea [3] and
Taiwan [5]). Details of which are shown in the table below:

First Day of
Name of Bank Country of Mode of Entry
1. Sumitomo Mitsui Banking
Japan KB Branch 01-Sep-2015
2. Cathay United Bank Taiwan KB Branch 02-Oct-2015
3. Shinhan Bank South Korea KB Branch 19-Oct-2015
4. Industrial Bank of Korea South Korea KB Branch 06-Nov-2015
5. United Overseas Bank Singapore KB Branch 04-Jan-2016
6. Yuanta Commercial Bank Co. Ltd. Taiwan TB Acquisition of a TB (existing)
7. Woori Bank South Korea TB Acquisition of a TB (existing)

This was affirmed by the recent upgrade to BBB+ from BBB by S&P Global Ratings on the long-term sovereign credit
rating for the Philippines in April 2019. Moreover, in February 2019, the S&P Global Ratings upgraded the Banking
Industry Country Risk Assessment (BICRA) of the Philippines to Group ‘5’ from Group ‘6’ following the signing of
R.A. No. 11211, or An Act amending R.A. No. 7653, The New Central Bank Act.

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8. First Commercial Bank Taiwan KB Branch 16-Dec-2016
9. Hua Nan Commercial Bank Taiwan KB Branch 4-Aug-2017
10. Chang Hwa Commercial Bank Taiwan KB Branch 9-July-2018
11. CIMB Bank Philippines, Inc. Malaysia KB Branch 3-Dec-2018
12. Industrial and Commercial Bank
China KB Branch 14-Feb-2019
of China (ICBC)
Source of Data: BSP

As of end-March 2019, there are 29 foreign banks operating in the Philippines. This is
comprised of 24 foreign bank branches and 5 foreign bank subsidiaries3. The number is
expected to further increase due to the ongoing ASEAN Banking Integration Framework
(ABIF). Moreover, outside this regional integration initiative, there are more foreign banks
that signified interest to establish presence in the Philippines due to sound macroeconomic
fundamentals and stable growth prospects.

Foreign Banks
Selected Accounts PBS
Aggregate Balances % to PBS
Net Loans 9,890.8 709.4 7.2
Total Assets 16,916.1 1,204.5 7.1
Deposit Liabilities 12,764.1 710.5 5.6
Capital Accounts 2,068.1 186.7 9.0
Total Operating Income 668.1 63.2 9.5
Net Interest Income 515.6 42.6 8.3
Net Profit 179.7 12.3 6.8
Source of Data: BSP

In terms of market share of foreign banks, as of end-December 2018, the total assets FBBs
increased by 11.1 percent to P1,204.5 billion, which is equivalent to 7.1 percent of the total
resources of the banking system (as shown in table above).

3 26 U/KBs (24 foreign bank branches, 2 subsidiaries) and 3 subsidiary thrift banks

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