Philippines lifts foreign equity ownership restrictions in its banking industry

by DLA Piper

Philippine President Benigno Aquino III has signed into law Republic Act 10641 (RA 10641), “An Act Allowing the Full Entry of Foreign Banks in the Philippines.” 

Under the new law, signed on July 15, 2014, non-Philippine banks are permitted to (i) own up to 100 percent of the voting equity of existing Philippine banks, (ii) establish fully-owned banking subsidiaries in the Philippines or (iii) establish branches in the Philippines with full banking authority. 

Previously, non-Philippine banks could only own up to 60 percent of the voting equity of existing Philippine banks or of  banking subsidiaries incorporated in the Philippines.    

Criteria and requirements

The Monetary Board, the highest policy-making body of the Bangko Sentral ng Pilipinas (central bank), shall approve applications under RA 10641 provided that the applicant bank is considered “established, reputable and financially-sound.”  The applicant bank must be widely owned and publicly listed in its country of origin, except if the bank is owned and controlled by its government.

In addition, the Monetary Board shall consider other factors in reviewing applications including, but not limited to, the strategic trade and investment relationship between the Philippines and the country of incorporation of the applicant bank, the “demonstrated capacity, global reputation for financial innovation and stability in a competitive environment” of the applicant bank, the enjoyment of reciprocity rights by Philippine banks in the applicant bank’s country of incorporation and the applicant bank’s “willingness to fully share (its) technology.” 

RA 10641 also provides that the minimum capital requirements of banking subsidiaries and branches of non-Philippine banks will be equal to those prescribed for Philippine banks. Branches of non-Philippine banks must, in particular, permanently assign by inward remittance (to the Philippines) and convert into Philippine currency its minimum capital requirement. Branches may also open up to five sub-branches, subject to approval by the Monetary Board, while banking subsidiaries enjoy the same branching privileges as Philippine banks in the same category.

Foreclosure of real property

An additional feature of RA 10641 allows non-Philippine banks authorized to do banking business in the Philippines to participate in foreclosure sales of real properties mortgaged to them and to use enforcement proceedings in connection with such foreclosures.  The Philippine Constitution restricts the ownership of real property to Philippine nationals.  RA 10641 specifically allows non-Philippine banks to take possession of the mortgaged real property for a maximum of five years, during which time the bank should take steps to transfer its rights to a Philippine national.  The non-Philippine bank is not permitted to be the transferee of the title to the real property.  If the non-Philippine bank is unable to transfer its rights to the real property within the five-year period, the bank will be penalized one-half of one percent per annum of the price at which the real property was foreclosed until the property’s actual transfer to a Philippine national.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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