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FOREIGN BANKS IN THE PHILIPPINES

FOREIGN BANKS IN THE PHILIPPINES.

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FOREIGN BANKS IN THE PHILIPPINES

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  1. FOREIGN BANKS IN THE PHILIPPINES

  2. The passage of the law R. A. No. 7721, otherwise known as “An Act of Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines” in May 1994, encouraged greater foreign participation in the domestic banking system by allowing foreign banks to operate in the Philippines

  3. FOREIGN BANKS • refers to a bank of banking corporation formed, organized and existing under any foreign law • entry improves financial intermediation by increasing competition, improving stability and enhancing banking sector efficiency • participate in the domestic banking system by establishing foreign subsidiaries, branches or taking over existing domestic banks and other established foreign banks

  4. MODALITIES OF FOREIGN BANK ENTRY Foreign bank entry is the process by which foreign banks set up operations in a host country. They adopt a variety of institutional structures (including representative offices, branches, subsidiaries and joint ventures) and these different modes of entry tend to entail varying degrees of commitment to provide banking services to host country markets.

  5. A. REPRESENTATIVE OFFICE • Services the needs of their corporate customers that undertake activities abroad • Enables the parent bank and its client to deal with a variety of commercial and business transactions that relate to foreign market • Handles trade credit operations • Allows the parent bank to engage in banking activities such arranging international private debt and equity placements between borrowers in the host country and lenders in the source country

  6. Representative Office • Does not handle retail banking operations • Serves as a liaison office which deal directly with the public by promoting and giving information about the services offered by the foreign bank • Does not transact banking business such as deposit-taking , issuance of letters of credit and foreign exchange trading

  7. B. BRANCH • Is an overseas office of a bank incorporated in a foreign country • Is typically involved in the wholesale deposit and money markets, and arranges loans for both local and foreign agents and deal in the capital markets • Establishment is more costly than a representative office because this mode of entry allows the foreign bank to operate in the local money and capital market

  8. C. BANK SUBSIDIARY • Is often used to enter the retail banking markets • Is separately incorporated from the parent foreign bank, whose financial commitment to the subsidiary consist of the capital invested • Is allowed to perform the same functions as a domestic bank and enjoys the same privileges and limitations imposed on domestic banks of the same category • Limitations of its operation, subject to SBL, required capitalization

  9. D. ALLIANCE OR JOINT VENTURE • Is the preferred mode of foreign bank entry when foreign bank lacks, but wishes to acquire specific knowledge about domestic banking market condition • Involves taking minority stakes in existing domestic banks and involvement in the management of domestic bank by the foreign bank is normally low • Example is joint venture of a bank and insurance company

  10. FACTORS BEHIND THE INCREASING ROLE OF FOREIGN BANKS IN EMERGING MARKETS • Globalization of financial services • Removal of barriers to foreign bank entry • Wide availability of information technology

  11. ARGUMENTS FOR FOREIGN BANK ENTRY • Foreign banks improve quality, pricing, and availability of financial services • Foreign bank presence increases amount of funding available to domestic projects by facilitating capital inflows • Foreign bank presence improves financial system infrastructure

  12. ARGUMENTS AGAINST FOREIGN BANK ENTRY • Foreign banks serve only the most lucrative domestic markets or customers • Foreign banks may contribute to instability of aggregate domestic bank credit • Financial services represent a strategic industry best controlled by domestic interests • Concerns over multiple challenges to supervision raised by complex financial institutions active in a number of jurisdiction

  13. Qualification Requirements for Foreign Banks Entry • FX bank must be widely owned and publicly listed , unless more than 50% of its capital stock is owned by the government of its country of origin (widely owned if it has at least 50 stockholders without any stockholder owning more than 15% of its capital stock) 2. FX bank , as of date of application, be among the top 150 banks in the world or the top 5 banks in its country of origin

  14. 3. FX bank must be in compliance with capital requirements of its country of origin

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