6. Financial Sector
Capital Markets and Portfolio Investment
The Philippines welcomes the entry of foreign portfolio investments, including local and foreign-issued equities listed on the Philippine Stock Exchange ( ). Investments in certain publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws. Non-residents are allowed to issue bonds/notes or similar instruments in the domestic market with prior approval from the Central Bank; in certain cases, they may also obtain financing in Philippine pesos from authorized agent banks without prior Central Bank approval.
Although growing, the PSE (with fewer than 271 listed firms as of the end of 2019) lags behind many of its neighbors in size, product offerings, and trading activity. The securities market is growing but remains dominated by government bills and bonds. Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties. Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.
Credit is generally granted on market terms and foreign investors are able to obtain credit from the liquid domestic market. However, some laws require financial institutions to set aside loans for preferred sectors (e.g. agriculture, agrarian reform, and MSMEs). To help promote lending at competitive rates to MSMEs, the government has fully operationalized a centralized credit information system that uses financial statements to predict firms’ credit worthiness. The government has also implemented the 2018 Personal Property Security law, which aims to spur lending to MSMEs by allowing non-traditional collateral (e.g., movable assets like machinery and equipment and inventories).
Money and Banking System
The Bangko Sentral ng Pilipinas (BSP/Central Bank) is a highly respected institution that oversees a stable banking system. The Central Bank has pursued regulatory reforms promoting good governance and aligning risk management regulations with international standards. Capital adequacy ratios are well above the 8 percent international standard and the Central Bank’s 10 percent regulatory requirement. The non-performing loan ratio was at 2.0 percent as of the end of 2019, and there is ample liquidity in the system, with the liquid assets-to-deposits ratio estimated at about 48 percent. Commercial banks constitute more than 90 percent of the total assets of the Philippine banking industry. The five largest commercial banks represented about 60 percent of the total resources of the commercial banking sector as of 2019. Twenty-six of the 46 commercial banks operating in the country are foreign branches and subsidiaries, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase). Citibank has the largest presence among the foreign bank branches and currently ranks 13th overall in terms of assets.
Foreign residents and non-residents may open foreign and local currency bank accounts. Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under Central Bank regulations. For non-residents who wish to convert their local deposits to foreign currency, sales of foreign currencies are limited up to the local currency balance. Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.
Foreign Exchange and Remittances
The Bangko Sentral ng Pilipinas (Central Bank) has actively pursued reforms since the 1990s to liberalize and simplify foreign exchange regulations. As a general rule, the Central Bank allows residents and non-residents to purchase foreign exchange from banks, banks’ subsidiary/affiliate foreign exchange corporations, and other non-bank entities operating as foreign exchange dealers and/or money changers and remittance agents to fund legitimate foreign exchange obligations, subject to provision of information and/or supporting documents on underlying obligations. No mandatory foreign exchange surrender requirement is imposed on exporters, overseas workers’ incomes, or other foreign currency earners; these foreign exchange receipts may be sold for pesos or retained in foreign exchange in local and/or offshore accounts. The Central Bank follows a market-determined exchange rate policy, with scope for intervention to smooth excessive foreign exchange volatility.
The Central Bank does not restrict payments and transfers for current international transactions, in accordance with the country’s acceptance of International Monetary Fund Article VIII obligations of September 1995. Purchase of foreign currencies for trade and non-trade obligations and/or remittances requires submission of a foreign exchange purchase application form if the foreign exchange is sourced from banks and/or their subsidiary/affiliate foreign exchange corporations and falls within specified thresholds (currently USD 500,000 for individuals and USD 1 million for corporates/other entities). Purchases above the thresholds are also subject to the submission of minimum documentary requirements but do not require prior Central Bank approval. A person may freely bring foreign currencies with a value of up to USD 10,000 into or out of the Philippines; more than this threshold requires submission of a foreign currency declaration form.
Foreign exchange policies do not require approval of inward foreign direct and portfolio investments unless the investor will purchase foreign currency from banks to convert its local currency proceeds or earnings for repatriation or remittance. Registration of foreign investments with the Central Bank or custodian banks is generally optional. Duly registered foreign investments are entitled to full and immediate repatriation of capital and remittance of dividends, profits, and earnings.
As a general policy, government-guaranteed private sector foreign loans/borrowings (including those in the form of notes, bonds, and similar instruments) require prior Central Bank approval. Although there are exceptions, private sector loan agreements should also be registered with the Central Bank if serviced through the purchase of foreign exchange from the banking system.
The Philippines is pushing for amendments to the Anti-Money Laundering Act and Human Security Act to meet the Asia Pacific Group 2019 Mutual Evaluation Report recommendations ahead of the 2020 Financial Action Task Force’s (FATF) review. Proposed amendments include the addition of tax evasion, terrorism-related offenses, and corruption to the list of predicate crimes; the inclusion of real estate developers and brokers as covered persons; and the expansion of Anti-Money Laundering Council’s investigative powers and financial sanctions authority. In 2013, the FATF removed the Philippines from its “grey list” of countries with strategic deficiencies in countering money laundering and the financing of terrorism. The Philippines has a restrictive regime for accessing bank accounts to detect or prosecute financial crimes, which is a significant impediment to enforcing laws against corruption, tax evasion, smuggling, laundering, and other economic crimes.
Sovereign Wealth Funds
The Philippines does not presently have sovereign wealth funds.