Go Watanabe, the 57-year-old managing executive officer and chief executive for Asia and Oceania of Japan’s biggest financial group, is bullish about the Philippines, given its large and young population.
The company he represents, The Bank of Tokyo-Mitsubishi UFJ Ltd., had been in talks with the Dy family, owner of Security Bank for about a year, before they agreed to a $782-million investment deal, the largest capital infusion by a foreign bank in the Philippines.
“Taking advantage of fast-growing Philippine market and attractive fundamentals of its macro-economy, we expect to expand our business platform indirectly through our strategic partnership with Security Bank and identify new business areas for BTMU in the Philippines,” Watanabe says in a news briefing at Makati Shangri La Hotel to announce the investment by the Japanese group in Security Bank.
Watanabe says while BTMU has a branch in Manila, the acquisition of a 20-percent stake in the 65-year-old Security Bank represents Japan’s growing interest in the Philippines. He says more Japanese companies are expected to follow the lead of BTMU.
“We understood that the Philippines is one of the potential markets within Asia. Originally, Japan is our core market. Now, Asia is now our second market. That is why we would like to expand in each country in Asia. Among the Asian countries, if you look at the GDP of the Philippines, if you look at the number of very young people, I think this country is very prominent and potential market. Now we can see more investments from Japan. We are willing to support our customers, not only the Japanese customers, but also the Asian customers,” he says.
Japan, the world’s third largest economy, posted an average annual growth of only 0.49 percent between 1980 and 2015, because of its greying population. Watanabe says the young population of the Philippines presents good opportunities for the Japanese group to grow overseas.
The World Factbook shows that the median age in the Philippines is 23.5 years, younger than the global average of 29.7 years and Japan’s 46.1 years.
“The Philippines is a very good, potential market. BTMU Manila branch has been operating for more than 60 years, but in order to expand the business in this country and to provide the best service to customers, we think that one branch is not enough. So that’s why we have been looking for the one best partner in this country, and we found it in Security Bank. This is the right time we believe and we believe in the right partner we chose,” says Watanabe.
Several foreign banks have also taken notice of the growing economy and so-called demographic sweet spot of the Philippines.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. says the Philippines entered the demographic window in 2015, a period when a significant portion of the population joined the labor force.
Tetangco says this window together with the liberalization of foreign ownership of banks now allows multinational companies to take advantage of the opportunities in the country. “The country enjoys the confidence of a number of multinational companies, which have been here for quite some time and which have benefited from the economy’s 67 consecutive quarters of economic growth,” he says.
Consuelo Garcia, the country manager of ING Bank of the Netherlands, says foreign banks entering the domestic market under the Association of Southeast Asian Nations economic integration will be perfect vehicles to attract more foreign direct investments into the country. “Foreign banks can also bring their clients here and make them aware of the opportunities in the Philippines,” she says.
London-based Fitch Ratings says the Philippine banking industry remains healthy despite the global challenges. “Philippines banks – with robust domestic demand, resilient external liquidity flows, and low private external debt – are better positioned to face the macroeconomic challenges than the other Asean banking systems,” Fitch says in a report.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, has recently issued the implementing rules and regulations of RA 10641, which allows more foreign banks to apply for licenses to operate in the Philippines either as a branch or as a wholly-owned subsidiary.
The new law allows foreign banks to acquire up to 100 percent of the voting stock of an existing domestic bank. This was an increase from the 60-percent cap under the previous law (RA 7721).
RA 10641 also allows foreign banks to control up to a combined 40 percent of the total assets of the banking system. This was 10 percentage points higher than the previous 30-percent limit.
Several Asian banks opened their presence in the Philippines last year, including
Sumitomo Mitsui Banking Corp. of Japan, Industrial Bank of Korea, Shinhan Bank of Korea and Cathay United Bank of Taiwan.
Cathay Life Insurance Corp. of Taiwan infused P17.9 billion for a 20-percent stake in Rizal Commercial Banking Corp. in April 2015 while Yuanta Commercial Bank Co. Ltd. of Taiwan took full control of Makati-based Tongyang Savings Bank.
The latest investor—Mitsubishi UFJ Financial Group Inc.—the parent company of BTMU, is one of the world’s largest financial groups with total assets of $2.4 trillion. It has also acquired significant stakes in major banks in Vietnam, Thailand, Indonesia and Malaysia.
Watanabe, who obtained an Economics degree from Waseda University and Master’s in Business Administration from the University of California, Berkeley in the US, is the man in charge of expanding MUFG’s presence in Asia and Oceania.
Watanabe personally attended the signing of the investment deal with Security Bank on Jan. 14, which transformed the latter into the Philippines’ fifth largest lender, by capital. The Japanese group agreed to acquire newly-issued primary shares of Security Bank consisting of 150.7 million common shares at P245 apiece and 200 million preferred shares at P0.10 per share for a total of P36.9 billion. The buying price represents an 81-percent premium to the bank’s stock prior to the transaction.
Watanabe says the investment is a testament to MUFG’s commitment to sustain and grow its business in the Philippines. “This is a good start in 2016. We are making headway in our effort to becoming tier 1 global financial institution in the Asian market by 2020. We look forward to growing our presence in the Philippines through the support and partnership with Security Bank, our new partner,” he says.
Watanabe says the Japanese group is satisfied and comfortable with the 20-percent holdings in Security Bank, which gives them two seats to the 11-man board of directors. “In the future, if there is another opportunity for BTMU to increase the share, in that case we might take seriously. But at this moment, 20 percent is our agreement with the Dy family and we are very comfortable at this level,” he says.
Alberto Villarosa, the 65-year-old chairman of Security Bank, says the transaction represents the largest investment by a foreign financial institution in the Philippines, after the government passed Republic Act 10641, allowing the full entry of foreign banks into the country.
“Even with the infusion of capital from BTMU, our foreign ownership level will be 35 percent, which is below our 40-percent limit. We are comfortable that we are within the 40-percent limit mandated by law,” says Villarosa.
Alfonso Salcedo Jr., the 60-year-old president and chief executive of Security Bank, says the capital infusion by MUFG and BTMU made the Philippine lender the fifth largest in the Philippines in terms of capital. He says the target is to become one of the four largest banks in three to four years.
Salcedo says the infusion will increase Security Bank’s shareholder capital from P52.4 billion as of September 2015 to P89.3 billion on a pro-forma post transaction basis.
Salcedo says Security Bank plans to increase its branch network from 262 branches right now to 500 to 600 branches in five years.
Watanabe says BTMU can also lend its expertise to Security Bank particularly in the area of project finance. “BTMU is a global [leader] in project finance. That capability, plus the huge demand for infrastructure projects in this country, we can provide the best project finance services to this country,” he says.
Villarosa says the partnership is expected to bear fruits in the immediate future, “leveraging on BTMU’s large global presence and Security Bank’s strong domestic franchise.”
Frederick Dy, the 61-year-old chairman emeritus of Security Bank, says his family will remain the largest shareholder in the bank. “BTMU will be the second largest shareholder of the bank, second to my family’s shareholdings,” he says.
“It is a game changing development that changes the landscape of Philippine banking,” says Dy. “I would like to emphasize the Dy family’s unwavering commitment in support for Security Bank. We will continue to be the largest shareholder and have majority voting control. We intend to stay that way and remain committed to the bank.”