December 12, 2017 | MANILA, PHILIPPINES

Firms’ expansion to drive banks’ offshore ventures

BIG BUSINESSES venturing abroad would likely prompt Philippine banks to also set up branches overseas, a senior central bank official said, while the regulator is preparing deals for cross-border banking with other Southeast Asian countries.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr. said no Philippine banks have formally sought clearance to open branches within the Association of Southeast Asian Nations (ASEAN), even after the central bank concluded a bilateral deal with the Bank Negara Malaysia earlier this month.

The deal allows three QABs from one country to set up shop in the other, ahead of the ASEAN Banking Integration Framework (ABIF) eyed in full swing by 2020.

Under the agreement, a local bank must seek BSP’s approval to be a qualified ASEAN bank (QAB) before they can operate in Malaysia.

Although the deal with Kuala Lumpur is already in place, Mr. Espenilla said he does not expect Philippine lenders to avail of a slot to go abroad just yet.

“Typically the motivator for a Philippine bank to go into ASEAN -- the same way as foreign banks are coming here -- is following Philippine businesses going abroad. We’re already having more regional multinationals. If those are moving out, they may be following those businesses,” Mr. Espenilla said in a recent ambush interview.

“They have to see whether that matches their strategy. It’s not just a matter of availing the privilege. It should make money at the end of the day,” Mr. Espenilla added, noting that Potential remittance volumes may also be considered by a Philippine bank in venturing overseas.

Malaysia is the 11th biggest export destination for locally-produced goods, accounting for 2.1% of outbound shipments last year worth $1.189 billion, according to the Philippine Statistics Authority. Remittances from overseas Filipinos working there also totalled $311.447 million in 2016, based on central bank data.

The BSP finished its negotiations with Malaysia during the ASEAN central bankers’ meeting in Cebu on April 6, while starting formal discussions with the Bank of Thailand. Once concluded, this would be the second ABIF deal for the Philippines. BSP Governor Amando M. Tetangco, Jr. said the deals are expected to increase cross-border financing and trade, as it also unlocks investment opportunities across the region.

The ASEAN is the sixth largest economy in the world, with its gross domestic product expected to reach $3.5 trillion by 2021, according to regional data. Total trade logged $2.3 trillion in 2015, and attracted $121 billion in foreign direct investments.

Nine foreign banks have entered the Philippines over the last two years following the passage of a law that removed the cap in the number of offshore lenders that can enter the country.

Officials have said that other Asian banks have expressed interest to put up branches here in the country.