Philippines - Banking SystemsPhilippines - Banking Systems
Since 1997, the BSP has implemented various regulatory reforms to enhance governance standards, risk management systems, and tighten disclosure and reporting requirements, increase minimum capitalization levels, and improve compliance frameworks and systemic oversight. The BSP continues to promote mergers/consolidation through various mechanisms such as regulatory incentives and strengthening programs, especially for the less-capitalized rural and cooperative banking sectors. The BSP has also demonstrated greater resolve in weeding out weak financial institutions by intensifying enforcement actions.
The BSP has worked for the adoption of international risk-based capital adequacy and disclosure standards (i.e., the Basel framework) since 2001. Commercial banks and their subsidiary banks and quasi-banks have been required to adopt enhanced standards (“Basel III”) since 2014. Simpler standards (“Basel 1.5”) apply to thrift, rural and cooperative banks that are not subsidiaries of commercial banks. The BSP has also adopted the international framework for dealing with domestic systemically important banks (basically banks considered too big to fail), requiring staggered implementation of higher capital buffers starting January 1, 2017 toward full compliance by January 1, 2019. http://www.bsp.gov.ph/regulations/implementation.asp
Twelve new foreign banks have been approved to enter the Philippine market since the enactment of a July 2014 law liberalizing foreign participation in the banking sector; nine are operating and three are completing pre-operating requirements.. Under the ASEAN Economic Community (AEC) Blueprint, the Philippines is working to help accomplish the goals of financial integration and work toward allowing entry of Qualified ASEAN banks (QABs) in the country. The BSP has concluded bilateral negotiations with the central bank of Malaysia on guidelines governing the entry of QABs between the two countries and has signed letters of intent with the central banks of Thailand and Indonesia to formalize discussions under the ASEAN Banking Integration Framework.
As of the end of March 2018, the banking sector comprised 43 commercial banks, 55 thrift banks, and 487 rural and cooperative banks, with combined assets of approximately US$294 billion (PhP15,332 billion). Although fewer in number, commercial banks dominate the banking sector and account for more than 90 percent of the banking system’s total resources. Twenty-one commercial banks (referred to as universal banks) have an expanded commercial banking license, which allows them to perform the functions of an investment house (such as securities underwriting) and invest in non-allied undertakings, in addition to regular commercial banking activities. A total of 27 banks (23 commercial banks and four thrift) are licensed to engage in additional derivatives activities. Of the 26 foreign banks in the Philippines, 21 are branches and five are are majority foreign-controlled, domestically-incorporated subsidiaries. Additionally, there are two offshore banking units (OBUs), as well as 11 foreign bank representative offices, two of which are U.S. banks.
More detailed regulations governing the operations of banks and other BSP-supervised financial institutions are available in various circulars, including the Manual of Regulations for Banks, Manual of Regulations for Non-Bank Financial Institutions, and Manual of Regulations on Foreign Exchange Transactions compiled by the Bangko Sentral ng Pilipinas (BSP, the Central Bank).
The largest sectors comprising outstanding loans of the banking system as of the end of March 2018 were real estate activities (18 percent), wholesale and retail trade (12.6 percent), manufacturing (11.5 percent), and households/consumers (11.1 percent). Outstanding loans from banks' foreign currency deposit units stood at about $15.4 billion at the close of 2017, mainly to resident borrowers such as merchandise exporters (21 percent), public utilities (11.1 percent), and other producers/manufacturers (3.7 percent).
The BSP is required by law to conduct regular examinations of its supervised financial institutions once every 12 months. Special examinations require the affirmative vote of at least five of the seven members of the BSP Monetary Board, the central bank’s highest policymaking body. In addition, the BSP requires that bank financial statements be audited by BSP-accredited external auditors.
External auditors are required to bring to the authorities’ attention any adverse audit findings and any material developments affecting the condition of its audited financial institutions. To promote independent and transparent auditing, the external auditor and/or auditing firms should be changed, or the lead and concurring partner rotated, at least every five years. A bank’s senior management should also disclose to the BSP any significant risks/issues that may affect the bank, including changes in management.
Pending legislation in the Philippine Congress to amend the BSP’s charter seeks to strengthen the BSP’s supervisory and enforcement powers, provide legal protection for BSP officials and bank examiners in the performance of their official duties, enhance the BSP’s ability to manage financial system liquidity (including authorization to issue its own securities), and allow the orderly resolution of troubled banks.
The deposit insurance scheme -- administered by the Philippine Deposit Insurance Corporation (PDIC) -- is patterned after the U.S. Federal Deposit Insurance Corporation (FDIC). The PDIC has a permanent insurance fund (PIF) of about $57 million (PhP3 billion), augmented by premiums paid by member banks (currently one-fifth of one percent per annum of the deposit base). The PDIC’s insurance coverage per depositor is approximately $9,600 (PhP 500,000).
Revisions to the PDIC charter in 2004, 2009 and 2016 enhanced the PDIC’s receivership, liquidation, and resolution powers. Among others, the most recent amendments allow earlier intervention in problem banks before closure; simplify the payout of insurance coverage to affected depositors; and provide a more seamless transition from closure to liquidation.
Philippines Market Access Banks