The Monetary board of the Bangko Sentral Ng Pilipinas has given its assent to HSBC's purchase of PCIB Savings Bank. PCIB Savings Bank is a thrift bank, one of the four owned by Equitable PCIBank. The latter is the Philippines' third largest bank by assets which was formed by the merger of Equitable and PCIBank which was formalized early this year. HSBC is the 13th largest bank by assets operating in the country.
The decision shows a positive liberalization mindset on the part of the Monetary Board (MB) - the highest monetary policy making body in the country - as it had to find a loophole in the banking laws as its source of authority for the decision. As such, the decision could be challenged in the courts if an aggrieved party were to raise the validity of the board's interpretation of the law.
"This precedent-setting policy," the MB said, "paves the way for all other foreign banks and foreign bank branches similarly situated to maximize their investment rights under their respective banking licenses." Since the MB approved a policy, rather than merely promulgate a decision on the specific case of HSBC acquiring PCIB Savings, it has cleared the way for other foreign banks to invest in the local thrift bank sector.
The Board cited Republic Act 7721 (Foreign Banks Liberalization Act) which "conferred upon foreign bank branches the status of being equals of Philippine banks holding the same banking licenses." Under banking law, universal banks may own 100% of a thrift bank - but the law is silent on whether foreign banks under RA 7721 are qualified for such a privilege. From the letter of the banking act, the term "universal bank" refers only to Philippine-incorporated or Filipino-owned banks.
"The certificate of authority dated July 2, 1999 issued by the BSP to HSBC Manila branch vests in them all the rights of a universal bank, including investment in a thrift bank," the central bank said. The Thrift Bank Law provides for a maximum of 60% foreign ownership. The decision of the board interprets foreign banks as having the same rights as Philippine universal banks, an interpretation which can be assailed in the courts.
Why did the Monetary Board make a strained interpretation of the banking laws to allow ownership of thrift bank? Because of lack of foreign investments. Given its record-breaking currency dips, and confidence-shattering internal squabbles such as the recent accusation that President Estrada has been accepting gambling payoffs, the country desperately needs foreign investment.
Thus the Monetary Board said: "This is as it should be, considering that the liberalization of the Philippine banking system was deliberately undertaken to encourage much needed foreign investment in the country." Manila branches of foreign banks control 12% of assets and 14% liabilities in the local banking system.
Foreign ownership of banks
Under banking laws, within seven years of the General Banking Act of 2000 (GBA), the Monetary Board may authorize a foreign bank to acquire up to 100% of the voting stock of only one bank organized under the laws of the Philippines. Within the same period, the Monetary Board may authorize any foreign bank, (which, prior to the GBA coming into effect, acquired up to 60% of the voting stock of a bank under the Foreign Banks Liberalization Act and the Thrift Banks Act), to further acquire voting shares of such bank to the extent necessary for it to own 100% of the voting stock thereof. However, the GBA mandates that the Monetary Board shall ensure that at all times control of 70% of the resources or assets of the entire banking system is held by banks which are at least majority-owned by Filipinos.