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Bevy of foreign suitors woo Philippine banks ahead of deregulation

July 6, 2014

The Philippine law would replace a cap of 60 per cent on foreign ownership and abolish previous rules that allowed just 10 foreign banks in the country.

A planned law allowing foreign firms to take full control of Philippine lenders is drawing eager suitors to the sector, including Japan'sMitsubishi UFJ Financial Group and Malaysia'sCIMB Group Holdings, bankers familiar with the matter say.

The attraction also lies in the Philippines' emergence as one of Southeast Asia's most rapidly growing economies - one that has sharply boosted personal incomes and demand for loans - while the banking sector is highly fragmented and underdeveloped, making it ripe for consolidation.

Others scoping out acquisition opportunities are private equity firms such as TPG as well as Taiwanese banks, the bankers said, adding that targets include Rizal Commercial Banking Corp (RCBC). The sources declined to be identified as negotiations were confidential.

"The Philippines' banking sector is an attractive market for foreign banks and PE funds because it offers the perfect mix of fast growth in individual wealth and investability," said Keith Pogson, Asia financial services leader at accounting and consultancy firm EY.

By contrast, China, Indonesia and Malaysia place limits on foreign investment in banks.

The Philippine law would replace a cap of 60 per cent on foreign ownership and abolish previous rules that allowed just 10 foreign banks in the country. Already passed by Congress, it awaits the approval of President Benigno Aquino, who has flagged this is likely to come soon.

It is one of a slew of economic reforms led by Aquino that follow the Southeast Asian nation's long sought attainment of an investment grade credit rating last year, and brings the Philippines in line with countries like Australia and Japan which allow banks to be wholly owned by foreign firms.

Gaining full control of a local bank, as opposed to just 60 per cent, will allow foreign banks to merge a Philippine lender's operations with their own - a strategy that makes it easier for them to capitalise on regional trade flows and serve companies in their home countries that want to invest in the Philippines.

The latter motivation is particularly true of Japanese banks like Mitsubishi UFJ, banking sources said.

"All the heavy industries and construction companies from Japan see a huge amount of infrastructure spending in the Philippines," said a M&A banker at a European bank.

"The Japanese banks want to be they can fund these companies. If you step back further, there is also a strong political desire on the part of the Japanese leadership to have strong ties with Asean."

An executive at a large Japanese bank said his bank was looking to acquire a Philippine lender but added it had yet to narrow down any targets. He declined to be identified further. The planned law was also a topic of discussion between Aquino and Japanese Prime Minister Shinzo Abe on Aquino's trip to Japan last month with Abe expressing his approval.

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Source: Khaleej Times (United Arab Emirates)

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