Gov’t infrastructure push attracts foreign banks

FOREIGN BANKS entering the Philippines are looking to ride on the government’s infrastructure push as they expand their presence here, a central bank official said, offering fresh sources of capital that can be tapped for big-ticket projects.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla, Jr. said growing interest among foreign players to enter the local market was likely fuelled by the country’s mounting infrastructure needs, with banks seeing this as an opportunity to expand their lending businesses.

“Most of the [foreign] branches, they’re looking for institutional business. Actually, what they are eyeing is infrastructure. Malaki ang play ng infra (There’s good business in infrastructure), so they want to go into that,” Mr. Espenilla said in a recent interview.

To date, nine foreign lenders have secured the central bank’s nod to set up shop in the Philippines over the last two years following the passage of Republic Act 10641 that lifted the limit on the number of offshore players allowed to operate in the local banking system.

Budget Secretary Benjamin E. Diokno has said that the Duterte government eyes to spend as much as P9 trillion over the next six years on public infrastructure, which in turn would help boost economic growth while improving the ease of doing business here.

BSP Governor Amando M. Tetangco, Jr. said in a Jan. 10 speech that six more foreign banks have expressed interest in coming to the Philippines, which he said signalled confidence in the local financial system despite heightened uncertainty in the global markets.

BUY-IN DEALS
Separately, Mr. Espenilla said non-Asian banks have also inquired about possible buy-in deals with local banks.

He added that these foreign banks are opting for “strategic partnerships” with local players for them to be able to immediately tap a huge network of clients here.

“They are looking to buy into a big bank…because they want to have a strong partner because of the local knowledge. The fact is, our big domestic banks are already established, they’re very hard to battle in the Philippines,” the BSP official said.

The nine lenders that have secured the BSP’s approval are Taiwan’s Cathay United Bank, Yuanta Commercial Bank Co. Ltd., First Commercial Bank, and Hua Nan Commercial Bank Ltd.; Japan’s Sumitomo Mitsui Banking Corp.; South Korea’s Industrial Bank of Korea, Shinhan Bank, and Woori Bank; and the Singapore-based United Overseas Bank Ltd.

Japan’s biggest lender, the Bank of Tokyo-Mitsubishi UFJ, Ltd., bought a 20% stake in mid-sized lender Security Bank Corp. last year, boosting the local firm’s capital by P36.9 billion.

Currently, the operations of newly opened foreign bank branches here have been concentrated on servicing their nation’s clients, particularly for corporate lending.

But Mr. Espenilla said these offshore banks may find room to compete in terms of infrastructure lending: “Local banks have SBL (single borrower’s limit), so there’ll be a space there.”

The SBL is intended to cap the credit exposure to a single client to a maximum of 25% of a bank’s net worth, as mandated by the BSP on its supervised entities. The ceiling includes loans and securities underwritten by universal banks and investment houses that were unsold after 90 days.

From 2010 to 2016, the BSP allowed construction firms and service providers to borrow up to 25% of a bank’s net worth for public-private partnership (PPP) projects outside the SBL in order to support infrastructure development. This leeway was not extended by the BSP anymore given new borrowing channels now available, Mr. Espenilla said.

“We didn’t extend the [relaxed] SBL for the PPPs because there’s enough. There are foreign banks coming in,” the central bank official pointed out.

Mr. Espenilla said banks may choose to offer syndicated loans to corporations, where a group of banks pool their loanable funds for a borrower.