The effect of foreign entry and ownership structure on the Philippine domestic banking market

College

Ramon V. Del Rosario College of Business

Department/Unit

Economics

Document Type

Article

Source Title

Journal of Banking and Finance

Volume

27

Issue

12

First Page

2323

Last Page

2345

Publication Date

12-1-2003

Abstract

We examine the response of domestic Philippine banks to the relaxation of foreign entry regulations that occurred in the Philippines. We find evidence that foreign bank entry is associated with a reduction in interest rate spreads and bank profits, but only for those domestic banks that are affiliated to a family business group. Foreign entry corresponds more generally with improvements in operating efficiencies, but a deterioration of loan portfolios. Overall, we conclude that foreign competition compels domestic banks to be more efficient, to focus operations due to increased risk, and to become less dependent on relationship-based banking practices. © 2002 Elsevier B.V. All rights reserved.

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Digitial Object Identifier (DOI)

10.1016/S0378-4266(02)00330-8

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