An update on the effects of foreign bank entry on the performance of domestic universal and commercial banks in the Philippines

Foreign bank presence in the Philippines has been increasingly evident. Global financial markets, financial insitutions and consumers have all felt the effects of foreign bank liberalization. The Foreign Bank Liberalization Act or Republic Act 7721 has been implemented to improve the banking industry through the increase competition. This study aims to discover how Philippine banks have been affected due to foreign bank entry for the years 2001-2010 using the top 10 domestic banks based on year-end assets. The results obtained succeeding the regression processes indicate that foreign market share and foreign number share both have a negative correlation on domestic banks net interest margins and return on assets. While operating expenses of domestic banks on the other hand has both a positive and negative relationship with the respective foreign bank proxies. Despite the gradually weakening presence of foreign banks as can be seen in their declining number and market share raios of the time periods of the study, results indicate foreign bank presence still have a significant effect on domestic bank performance at the time period of the study