AN ACT ALLOWING THE FULL ENTRY OF FOREIGN BANKS IN THE PHILIPPINES

Case Overview and Summary

Summary of Republic Act No. 10641

Allowing Full Entry of Foreign Banks in the Philippines

- Modes of Entry for Foreign Banks (Section 1):
• Acquiring up to 100% voting stock of an existing bank.
• Investing up to 100% voting stock in a new banking subsidiary incorporated in the Philippines.
• Establishing branches with full banking authority.

- Guidelines for Approval (Section 2):
• Ensure geographic representation and complementation. (Section 2)
• Consider strategic trade and investment relationships between the Philippines and the foreign bank's country. (Section 2)
• Study the applicant's capacity, global reputation, financial innovations, and stability. (Section 2)
• Ensure reciprocity rights for Philippine banks in the applicant's country. (Section 2)
• Consider willingness to share technology. (Section 2)
• Only established, reputable, and financially sound foreign banks allowed. (Section 2)
• Foreign bank must be widely-owned, publicly-listed, or owned by its country's government. (Section 2)
• Monetary Board to ensure at least 60% of banking system assets held by domestic, Filipino-majority banks. (Section 2)

- Capital Requirements (Section 4):
• For locally incorporated subsidiaries: Same minimum capital as domestic banks of the same category. (Section 4)
• For foreign bank branches: Permanently assign capital not less than minimum for domestic banks of the same category, inwardly remitted and converted to Philippine currency. (Section 4)
• Foreign bank branches may open up to 5 sub-branches as approved by Monetary Board. (Section 4)
• Locally incorporated subsidiaries have same branching privileges as domestic banks of the same category. (Section 4)

- Equal Treatment (Section 5):
• Foreign banks perform same functions, enjoy same privileges, and subject to same limitations as Philippine banks of the same category. (Section 5)
• Single borrower's limit of foreign bank branch aligned with domestic bank. (Section 5)
• Foreign banks must guarantee observance of employee rights under the Constitution. (Section 5)
• Any right or incentive granted to foreign banks shall be equally extended to Philippine banks. (Section 5)

- Participation in Foreclosure Proceedings (Section 6):
• Foreign banks allowed to bid and take part in foreclosure sales of mortgaged real property for up to 5 years from actual possession. (Section 6)
• Title to property cannot be transferred to foreign bank. (Section 6)
• If foreign bank is winning bidder, it must transfer rights to a qualified Philippine national within 5 years. (Section 6)
• Failure to transfer within 5 years incurs penalty of 0.5% per annum of foreclosure price until transfer. (Section 6)

- Transitory Provisions (Section 7):
• Foreign banks already authorized may apply to change their original mode of entry. (Section 7)
• Existing foreign bank branches retain privilege to establish limited sub-branches, but location restriction lifted. (Section 7)
• Existing foreign bank branches must comply with minimum capital requirements within 1 year, unless extended by Monetary Board. (Section 7)

- Applicability of Other Banking Laws (Section 8):
• Provisions of Republic Act No. 7653 (New Central Bank Act) and Republic Act No. 8791 (General Banking Law of 2000) apply insofar as applicable and not in conflict with this Act. (Section 8)

- Rule-Making Powers and Compliance Reports (Section 9):
• Monetary Board authorized to issue rules and regulations to implement this Act. (Section 9)
• Monetary Board to file annual written report to Congress on implementation developments by May 30 each year. (Section 9)
• Implementing rules and regulations to be published in at least two newspapers of general circulation. (Section 9)