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Local banks ready to face Asian peers

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said Philippines banks are ready to face the challenges of foreign lenders entering the country under the Asean financial integration because of stronger and established presence in the domestic market.

“Is the Philippine banking system ready? We are clearly in a position of strength as an industry and, individually our banks have been enlarging their domestic footprint... and capitalizing on e-banking technology,” Tetangco said in a speech during the Philippine International Banking Convention held in Makati last week.

“... The Philippine boat may not be the large vessel of other jurisdictions but the fact that we have been able to steer through the turbulent and uncertain waters of the last decade is itself the testament of our resolve and our strength as a market,” Tetangco said.

He said by mainstream indicators, the Philippine banking industry remained in a position of strength. Total resources of universal and commercial banks  grew 11.6 percent between 2010 and June 2015, while their July non-performing loan ratio stood at 1.9 percent.

The capital adequacy ratio of these banks stood at 15.1 percent with stress test results confirming enough capital buffer in the event of extreme shocks, he said.

Tetangco said beyond these traditional measures, financial technology also positively transformed the domestic banking industry.

“... This is the banking landscape of today and our banks have, by and large, redirected their attention to these facets. From a policy perspective, this was the wherewithal for crafting Circular 854, which adjusted the minimum capital levels required of banks. It is a recognition that banking has moved on from the folders and filing cabinets of old to the systems and interfaces of today,” he said.

He said the more critical target, especially for those in the financial market, was 2020 at which time the Asean Financial Integration Framework or AFIF would be expected to be in place.

Tetangco domestic banks must establish first their comparative advantages onshore to be able to compete in the broader offshore market of Asean under the financial integration regime.

“It would be difficult to imagine how a bank can actively engage in the potential of Asean integration if it cannot be competitive in its own domestic market,” he said.

Tetangco said the issue became even more significant in light of the passage into law in 2014 of Republic Act 10641 that fully liberalized the domestic banking system and allowed 100-percent foreign ownership of local banks.

“This is an important reality to bear in mind. And as you can appreciate, this ‘distinctiveness’ of Asean is the pressing motivation why our banks are currently focused on fortifying their domestic franchise in a variety of modes.  We can, however, only surmise that this insular perspective will not be the norm for long,” he said.

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