Philippines
- Population – 76.5m (2000)
- Total labour force – 35.5m (2005)
- Average lending interest rate – 10.2% (2005)
- % change in consumer prices – 7.6% (2005)
- GDP at constant 1985 prices – P1,210bn (2005)
- Agriculture sector as % of total GDP – 19% (2005)
The financial sector is underdeveloped compared with that of other countries in the region, and the inadequacy of the local capital market is a major reason for the country's low propensity to invest. The ratio of total assets of the banking system to GNP is the lowest in East Asia, and individual commercial banks are small compared with those in other countries.
The Philippines has a large number of commercial banks (42 in 2005), varying widely in size, from the major banks with assets of more than P300bn (US$5.7bn) to small, frequently family-controlled operations. Two banks, the Land Bank of the Philippines and the Development Bank of the Philippines, are government-owned, and the government has a residual stake (through its pension funds) in the Philippine National Bank (PNB), after it sold a 33.5% tranche of its 45% equity in August 2005. The state also owns a small Islamic bank, the Al-Amanah Islamic Investment Bank, which serves Muslim areas in the south of the Philippines.
The entry of foreign banks was liberalised in the General Banking Law of 2000, which raised the maximum foreign ownership level of banks to 40% of voting stock. In addition, in certain conditions the central bank can allow a foreign bank to own 100% of a domestic bank. In 2005 a total of 18 foreign banks were operating in the country, but only one, Citibank, ranked among the top ten in terms of assets.
The general trend towards merger and consolidation was reinforced in the wake of the 1997-98 regional crisis when higher capitalisation was demanded of all banks. The quality of banks’ asset portfolios has also gradually improved, after their sharp deterioration in 1997-98. The Special-Purpose Assets Vehicle (SPAV) bill, which was passed in December 2002, provided tax incentives on the purchase by asset management companies of non-performing assets (both loans and foreclosed property). By March 2006 the ratio of commercial banks’ non-performing loans (NPLs) to total loans was down to 8%, compared with 19.4% at the end of 2001. A two-year extension of the act, introduced in April 2006, is expected to stimulate another marked fall in the ratio, approaching its pre-crisis level of 5%.
The biggest investment house is PDCP Bank, formerly known as the Private Development Corporation, followed by the Bank of the Philippine Islands Investment Corporation (formerly the Ayala Investment Corporation). The government-owned Development Bank of the Philippines is an important source of investment for agriculture and small- and medium-scale industry.
Source: The Economist Intelligence Unit
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