Does Foreign Entry in the Domestic Banking Sector Promote Efficiency

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Vol. XIX No. 5

What's Inside 4 6 9 10 11 14 15

Does foreign entry in the domestic banking sector promote efficiency? Macroeconomic policy plays a major role in financial liberalization PIDS Research: Looking through old and new policy frontiers PIDS Board Member shares some words of wisdom PIDS at 24 Through the eyes of aspiring photographers PIDS employees unite

September - October 2001

ISSN 0115-9097

From the local banks' perspective: Feeling the liberalization effects* Rene B. Hapitan**

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romoting a competitive environment is a natural course of action to take for the Philippine economy after two decades of economic reforms.1 The competition process complements the reforms pre-

viously implemented and is expected to maximize consumer welfare and allow the promotion of efficient market behavior.

Editor's Notes

This year, PIDS celebrated its 24th founding anniversay with its silver anniversary close at hand. Its theme, "Strengthening the Infrastructure for Research and Networking" is a continuation of last year's focus on providing the necessary infrastructure for doing research, an area where PIDS plays a leadership role. The weeklong celebration was highlighted by a seminar on the "Impacts, Risks and Opportunities of Financial Liberalization and Integration: A Macro-Micro Analysis." The three research papers presented during the seminar are the main features in this issue of the Development Research News. The papers looked into the impacts of the financial +16

In the banking sector, competition was instituted in 1994 with the implementation of the Foreign Bank Liberalization Act (Republic Act No. 7721). It was envisioned that the entry of foreign banks will create: …a dynamic banking and financial system that will stimulate economic growth, attract foreign investments, provide a wider variety of financial services to Philippine enterprises, households and individuals, strengthen linkages with global financial centers, enhance the country’s competitiveness in the international markets and serve as a channel for the flow of funds and investments into the economy to promote industrialization.2 With the liberalization of the Philippine banking and financial system, a more competitive environment is thus created and greater foreign

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* A condensed version of the author’s paper entitled “Reactions to the Entry of Foreign Banks in the Philippines: A Critical Study of Selected Local Banks” with the Philippine APEC Study Center Network (PASCN). ** Assistant Professor, Financial Management Department, De La Salle University, Manila. 1 In terms of deregulation, privatization and the removal of unreasonable trade barriers (Rafaelita Aldaba. 2001. Competition policy: Why does it matter? Part II. Economic Issue of the Day, Volume II Number 2. Makati City: PIDS.). 2 RA 7721, Section 1.


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