© 2012 metropolitan bank & trust company i research department i strategic planning division....

© 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors.

ASEAN Economic Community and the Philippine Banking Sector

…and what it means to Philippine Entrepreneurs

Marc Bautista, CFAHead of Research, Metrobank


Framing The Issue

The Asean Economic Community (AEC) by 2015• What is it?• What is the impact to the Philippines?


ASEAN Economic Community (2015)

What are the aims?

• Single market and production base (free flow of goods & services)

• Highly competitive economic region

• Region of equitable economic development

• Full integration to the global economy


United States Euro area China Japan ASEAN-5

17,419

13,391

10,380

4,616

2,060

Nominal GDP (2014) USD Billion

Source: IMF World Economic Outlook April 2015


5

STRATEGIC APPROACH

Single market and production base

Highly competitive economic region

Region of equitable economic development

Full integration to the global economy

FREE FLOW OF: • Goods• Services• Investment• Capital• Skilled labor• Priority Integration Sectors• Food, Agri, & Forestry

• Competition policy• Consumer protection• Intellectual property rights• Infrastructure development (transport, energy, mineral, ICT)• Taxation• E-commerce

• SME development• Initiatives for ASEAN integration

• External relations and global supply networks


Indonesia Thailand Malaysia Singapore Philippines Vietnam

889

374327 308 285

186

Nominal GDP (2014)USD Billion


PHILIPPINES

Source: Focus Economics Consensus Asia, June 2015


INDONESIA



THAILAND



MALAYSIA



SINGAPORE



VIETNAM



Key Take-aways• The AEC is to be regarded as a unit-whole that

– Has internal markets worth more than 2Tr USD– Trades externally with other major economies

• Members of AEC actually trade more heavily with non-AEC members

• There are as much opportunities as there are threats– Need to view the AEC as a “local market” upon full-integration


What has been done so far locally towards

integration?

• Easier access of foreign goods and services (tariff reduction, easing of foreign ownership rules)

• Steps to make local and export-oriented industries more competitive


All ASEAN goods at 0% CEPT except for sensitive list

ITEMS MFN (in-quota)

CEPT

2010 2011 2012 2013 20142015

onwards

Swine (live & meat) 30

5

Poultry (live) 35

Poultry (meat) 40

Cassava 40

Sweet potatoes 40

Maize 35

Sugar 50 38 38 28 18 10 5

Rice(highly sensitive)

2012-2013 – 402014-2015 – 50

40 40 40 40 40 35

PHILIPPINE SENSITIVE LIST

Only sugar & rice will experience further tariff reductions until 2015

Source: Tariff Commission


Wholesale & Retail Trade: From 0% to 100% (2002)

Private Radio Communication:From 0% to 20% (2002)

Rice & Corn (culture, prod’n & processing :From 40% to 100% (2000) subject to conditions

Financial Services :Banking Liberalization Law of 2014

Gambling:From 40% to 100% (2012) subject to conditions

Transportation:Removal of air route restrictions, RORO to and fro Indonesia, scrapping of common carriers tax

Steps towards liberalization were made


However, 2015 won’t likely be a cliff for the Philippines..


Out of 19 target areas based on AEC aims, there are only

7 areas whose measures were all implemented by ASEAN as of the latest AEC scorecard


70% foreign ownership requires Charter Change

Priority bills might take longer than 2015 deadline

Financial services liberalization will take place "with due respect for national policy objectives

Compliance to AEC goals require major legislative action


No major shifts in trade performance until 2015

Zero tariff mostly enforced in 2010

ASEAN countries not among top 5 import sources

Current bilateral agreements not

harmonized in the region


39

Scorecard for 2008-2011

All measures implementedMore than half of measures implementedLess than half of measures implemented

Free

Flo

w o

f G

oods

Free

Flo

w o

f S

ervi

ces

Free

Flo

w o

f In

vest

men

t

Free

Flo

w o

f C

apita

l

Free

Flo

w o

f S

kille

d La

bor

Prio

rity

Inte

grat

ion

Sec

tors

Food

, Agr

icul

ture

, an

d Fo

rest

ry

Com

petit

ion

Pol

icy

Con

sum

er

Pro

tect

ion

Inte

llect

ual P

rope

rty

Rig

hts

Tran

spor

t

Ene

rgy

Min

eral

ICT

Taxa

tion

E-c

omm

erce

SM

E D

evel

opm

ent

Initi

ativ

e to

AS

EA

N

Inte

grat

ion

Ext

erna

l Eco

nom

ic

Rel

atio

ns

BruneiCambodiaIndonesiaLao PDRMalaysiaMyanmarPhilippinesSingaporeThailandVietnamASEAN

Source: ASEAN Secretariat

Back to originating slide


40

Based on an ADB study, only semi-integration is likely to happen by 2020

ASEAN Banking Framework

Source: ADB. “Combined Studies on Assessing the Financial Landscape and Formulating Milestones for Monetary and Financial Integration in ASEAN


Alongside this, steps are being made towards ASEAN Banking Integration by 2020

The goal?Equal ACCESS, TREATMENT, ENVIRONMENT• Regulatory harmonization and capacity building

• Less discrimination against foreign institutions

A medium to facilitate integration: Qualified ASEAN Bank (QAB)• Member countries should facilitate access of QABs to their own

domestic banking market

• Probable minimum QAB requirements (still on the drawing board):• Capital adequacy requirements

• Consolidation requirements and authority for consolidated supervision

• Restrictions on large exposure

• Accounting and transparency requirements

Source: ADB. “Combined Studies on Assessing the Financial Landscape and Formulating Milestones for Monetary and Financial Integration in ASEAN


Singapore Indonesia Malaysia Thailand Vietnam Philippines0

100

200

300

400

500

600

700

800

900816

699644

568

302250

Banking System Assets (2014)USD billion

*source: central bank data of respective countries


Key Take-aways on Banking• AEC is local, so start from the immediate local

market – for Filipinos, that’s the Philippines itself

• Important to partner with a bank that has good national coverage, in any country within the AEC– Ease of transacting anywhere by business and AEC

Banks


Metrobank Group (as of Mar 2015)

932branches

2,128ATMs

Largest Consolidated Domestic Branch Network

Largest Consolidated Domestic Branch Network Overseas Network CoverageOverseas Network Coverage

32Branches, subsidiaries, offices

Over

125Remittance tie-ups Over

190Remittance agents


In Summary…• AEC is a marathon… 2015 just marks the start of the

marathon• Still a long way off towards full-integration… perhaps

2025 and up for “almost-full integration”• Trade liberalization happened already in 2010 for the

Philippines• QABs will happen earlier than expected full

integration, around 2019-2020, thus the need to prepare businesses for AEC banking transactions


END OF PRESENTATION

The report above is circulated for general information only. The opinions expressed are solely those of the contributors and are based on prevailing market conditions and public sources that are believed to be reliable. Metrobank and the report contributors/support staff do not make any guarantees or representation as to the accuracy, completeness or suitability of this report. The report may contain confidential or legally privileged material and may not be copied, redistributed, or published without prior written consent. Opinions or strategies contained in this publication may change without prior notice and should not take the place of professional investment advice or sound judgment on the part of the reader.

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