The regulation of the Philippine financial services sector, particularly the banking sector, has undergone considerable change in the last two decades. On the one hand, there has been the removal of certain regulations such as direct controls on interest rates, as well as a substantial relaxation in other regulations such as restrictions on entry, lines ofbusiness, and portfolios. The overall objective of such deregulatory reforms was to promote competitive conditions to foster greater efficiency in the financial sector. On the other hand, there has also been a strengthening of prudential regulation, which was justified as necessary to protect depositors and to preserve the stability of the payments system. But it also needs to be recognized that there may be remaining regulations that unnecessarily restrict competition, and are no longer necessary for prudential reasons. Clearly a balance needs to be struck between the twin objectives of enhanced competition and efficiency, and soundness and stability of the financial sector. Ultimately, the goal should be a regulatory and supervisory structure that imposes the minimum level of control necessary to give effect to public policy objectives.
The design, implementation and enforcement of regulatory rules have expectedly affected the structure and nature of the Philippine financial services sector, especially since they continue to impose important constraints on the ownership and business powers of financial institutions. This, in turn, has important implications for the competitive process in the financial services sector and ultimately the type, quality and price of the products offered to consumers and business users. There have been a number of extensive studies detailing the changes in financial sector regulations and their overall effects. In particular, policies to strengthen the financial condition and supervision of the banking sector have resulted in overall soundness and stability. But whether the reforms have also resulted in a more competitive and efficient financial sector must also be established. A definitive study on the competitive structure of the Philippine financial services sector would thus be instructive.
The present study proposes to analyze how competition and efficiency in the financial services sector, particularly the banking and insurance industries, have been affected by the regulatory regime and market structure. It is part of a broader research project on developing a national competition policy for the Philippines. Competition policy is currently one of the most important structural issues worldwide. As border barriers decline, the behavior of firms plays an increasingly central role in global outcomes. This is especially true for the financial services sector.
One major area for future multilateral discussions is the international dimension of competition policy. Because of the reduction in border barriers to international trade in goods, services and capital allover the world, competition has taken on an increasingly global nature. The latter, in turn, has given rise to new issues such as the concept of international contestability of markets (Lloyd 1997). Thus, there have been efforts in the various multilateral institutions, such as the World Trade Organization (WTO) and the Asia Pacific Economic Cooperation (APEC), to look into this area to detennine whether new international agreements need to be wrought, and how (Graham and Richardson 1997).
Before any multilateral form of international or global competition policy can be established, however, individual countries first need to review and develop their own national competition policies. There are differing levels of development and structures of competition policy across countries, ranging from those that do not have a comprehensive competition policy to those that have well developed laws and structures. Patalinghug (1998) noted that the Philippines is among those that lack a national competition policy. The Philippines has neither a specific legislation to govern competition policy, nor a specific institution to enforce a rigorous and comprehensive competition policy. But the Philippine economy, in general, and the financial sector, in particular, have become increasingly more open as a result of liberalization and deregulation policies in the last two decades. The institution and development of an effective competition policy then becomes an important agenda for the future. Also, as a member economy of the APEC, the Philippines has made a commitment to develop a national competition policy, and to cooperate with the other APEC economies on this area (Patalinghug 1998). Furthermore, the financial services sector is part of the Philippines' international commitments for further liberalization in the near future. Hence, the importance of a well-defined competition policy in this sector.
Contents
Abstract
Executive Summary
Table of Contents
List of Figures
List of Tables
I. Introduction
II. Regulatory Framework
A. Financial policy in retrospect
B. Policies towards an efficient financial system: widening the
- scope for competition
C. Current regulations and restrictions
- Banking sector
Insurance sector
III Trends in Market Structure and Perfomlance
A. Banking sector
B. Insurance sector
IV. Competition Policy Issues in the Financial Sector
A. Banking sector
B. Insurance sector
c. Regulatory framework
v Some Conclusions
References
