Policy: liberalize yet keep control
- The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos.
- The State shall encourage, promote, and maintain a stable, competitive, efficient, and dynamic banking and financial system to stimulate economic growth, attract foreign investments, and provide a wider variety of financial services to Philippine enterprises, households, and individuals.
- The State shall strengthen linkages with global financial centers, enhance the country’s competitiveness internationally, and serve as a channel for the flow of funds and investments into the economy to promote industrialization.
- The Philippine banking and financial system is liberalized to create a more competitive environment and encourage greater foreign participation through:
- increased foreign participation in domestic banks by foreign banks through increased ownership, and
- the entry of new foreign bank branches.
- In allowing increased foreign participation, the financial system shall remain effectively controlled by Filipinos.
Entry modes for foreign banks
- The Monetary Board may authorize foreign banks to operate in the Philippine banking system through any of the following modes of entry:
- acquiring, purchasing, or owning up to sixty percent (60%) of the voting stock of an existing bank;
- investing in up to sixty percent (60%) of the voting stock of a new banking subsidiary incorporated under Philippine laws; or
- establishing branches with full banking authority.
- A foreign bank may avail itself of only one (1) mode of entry.
- A foreign bank or a Philippine corporation may own up to sixty percent (60%) of the voting stock of only one (1) domestic bank or new banking subsidiary.
Monetary Board approval guidelines
- In approving entry applications of foreign banks, the Monetary Board shall ensure:
- geographic representation and complementation;
- consideration of strategic trade and investment relationships between the Philippines and the foreign bank’s country of incorporation;
- study of the applicant’s demonstrated capacity, global reputation for financial innovations, and stability in a competitive environment;
- that reciprocity rights are enjoyed by Philippine banks in the applicant’s country; and
- willingness of the applicant to fully share technology.
- Only foreign banks among the top one hundred fifty (150) foreign banks in the world or the top five (5) banks in their country of origin as of the date of application may be allowed entry under the modes in Section 2(ii) and (iii).
- The Monetary Board shall adopt measures necessary to ensure that:
- at all times, the control of seventy percent (70%) of the resources or assets of the entire banking system is held by domestic banks that are at least majority-owned by Filipinos;
- a dominant market position by one bank or the concentration of economic power in one or more financial institutions, or in corporations, partnerships, groups, or individuals with related interests is prevented; and
- the shares of stocks of banking corporations established under Section 2(i) and (ii) are listed in the Philippine Stock Exchange.
- Banking corporations established under Section 2(i) and (ii) shall establish stock option plans for their officers and employees, consistent with available resources and in the best business judgment of their boards of directors pursuant to the Corporation Code of the Philippines.
- To qualify to establish a branch or a subsidiary, the foreign bank applicant must be widely-owned and publicly-listed in its country of origin, unless the foreign bank applicant is owned by the government of its country of origin.
Capital requirements and branch limits
- Minimum capital for locally incorporated subsidiaries of foreign banks shall be equal to the minimum capital prescribed by the Monetary Board for domestic banks of the same category.
- For foreign bank branches entering under Section 2(iii), the foreign bank shall permanently assign capital of not less than the U.S. dollar equivalent of P210,000,000.00 at the exchange rate on the date of the effectivity of the Act, as ascertained by the Monetary Board.
- The permanently assigned capital for branches shall be inwardly remitted and converted into Philippine currency.
- A foreign bank shall be entitled to establish three (3) branches under the initial permanently assigned capital.
- A foreign bank may open three (3) additional branches in locations designated by the Monetary Board by inwardly remitting and converting into Philippine currency as permanently assigned capital the U.S. dollar equivalent of P35,000,000.00 per additional branch at the exchange rate on the date of the effectivity of the Act, as ascertained by the Monetary Board.
- The total number of branches for each new foreign bank entrant shall not exceed six (6).
- For purposes of meeting prescribed capital ratios, the term “capital” shall include:
- permanently assigned capital plus
- “net due to head office, branches and subsidiaries and offices outside the Philippines”
in the ratio prescribed by law or as may be prescribed by the Monetary Board.
- In all cases, the permanently assigned capital and fifteen percent (15%) of “net due to” required to comply with prescribed capital ratios shall be inwardly remitted and converted into Philippine currency.
- Amounts invested in productive enterprises or utilized by Philippine companies for export activities shall not be subject to conversion into Philippine currency.
- The Monetary Board shall monitor the effective use of “net due to” funds.
- When there results “net due from head office” outside the Philippines, that amount shall be deducted from the capital accounts for purposes of determining required capital ratios.
Guarantee, governance, and equal treatment
- The head office of foreign bank branches shall guarantee prompt payment of all liabilities of its Philippine branches.
- Non-Filipino citizens may become members of the Board of Directors of a bank to the extent of the foreign participation in the bank’s equity.
- Foreign banks authorized under Section 2 shall perform the same functions, enjoy the same privileges, and be subject to the same limitations imposed upon a Philippine bank of the same category.
- Limitations include, among others, the single borrower’s limit and the capital to risk asset ratio, as well as the capitalization required for expanded commercial banking activities under the General Banking Act and other related laws.
- For computing the applicable ratio, the basis shall be the capital of the foreign bank branch in the Philippines.
- Foreign banks shall guarantee the observance of the rights of their employees under the Constitution.
- Any right, privilege, or incentive granted to foreign banks or their subsidiaries or affiliates under the Act shall be equally enjoyed by and extended under the same conditions to Philippine banks.
- Philippine corporations with shares listed in the Philippine Stock Exchange or of long standing for at least ten (10) years shall have the right to acquire, purchase, or own up to sixty percent (60%) of the voting stock of a domestic bank.
Additional branches and transition deadlines
- Foreign banks operating through branches in the Philippines upon the Act’s effectivity shall be eligible for the privilege of establishing up to six (6) additional branches under the same terms and conditions required by Section 4(ii).
- For any branch additional to what is existing at the time of the Act’s effectivity, the prescribed permanently assigned capital shall be complied with immediately.
- A foreign bank may open three (3) branches in locations of its choice and the next three (3) branches in locations designated by the Monetary Board to insure balanced economic development in all regions.
- Existing Philippine branches of foreign banks shall be given one-and-a-half (1 1/2) years from the Act’s effectivity to comply with the minimum capital requirements under Section 4(ii).
Timing and numerical entry allowances
- Foreign banks may enter under Section 2(iii) within five (5) years from the Act’s effectivity.
- During this period, six (6) new foreign banks may be allowed entry under Section 2(iii) upon approval of the Monetary Board.
- An additional four (4) foreign banks may be allowed entry upon recommendation of the Monetary Board, subject to compliance with Sections 2, 3, 4, and 5, upon approval of the President as the national interest may require.
Development loan incentives crediting
- Loans extended by a foreign bank’s majority-owned subsidiary incorporated under Philippine laws and/or a Philippine bank with sixty percent (60%) of its voting stock held by a foreign bank shall be included for determining compliance with Presidential Decree No. 717, as amended when the loans finance:
- educational institutions,
- cooperatives,
- hospitals and other medical services,
- socialized or low-cost housing, and
- local government units,
- without national government guarantee.
Stock exchange listing, rulemaking, and reporting
- Banking corporations established under Section 2(i) and (ii) shall have their shares of stock listed in the Philippine Stock Exchange.
- The Monetary Board is authorized to issue rules and regulations needed to implement the Act after consultation with the chairpersons of the Banks Committee of the House of Representatives and the Senate of the Philippines.
- On or before May 30 of each year, the Monetary Board shall file a written report to Congress and its respective Banks Committees on developments in implementing the Act.
Repeals, separability, and continuing law
- If any provision of the Act is declared unconstitutional, the remaining provisions not affected shall remain valid (separability clause).
- The provisions of Republic Act No. 337, as amended (the General Banking Act), apply to banks authorized under the Act to the extent applicable and not in conflict with the Act (Section 12).
- The Act repeals or modifies the following provisions insofar as they are