HONG KONG BANK CLOSES REPRESENTATIVE OFFICE IN RP
Manila, June 28, 2003 (Star) Hong Kong-based East Asia Bank has closed down its representative office in the Philippines due to weak regional economic conditions.
The Bangko Sentral ng Pilipinas (BSP) said EAB decided to withdraw its representative office after conducting a thorough review of its banking strategy in the region.
EAB is the only Hong Kong bank in the country and with the closure of its representative office, the BSP said there are only 16 representative offices now left operating in the Philippines.
The BSP said EABís representative office mainly provided information to its clients in the country although it did not offer banking services which only overseas banking units (OBUs) were allowed to provide.
According to the BSP, EABís closure of its representative office marked the bankís streamlining and the primary reason cited was the weakening of the regional economy which no longer necessitated its presence in the Philippines.
Foreign banks that have initially expressed enthusiasm over the countryís effort to open up the banking industry have recently started to reassess their positions in the industry especially after Congress removed the tax-exempt status of offshore banking units and foreign currency deposit units.
So far, three OBUs have closed down, namely Standard Chartered Bank of Australia, United Overseas Bank Limited and the Bank of Novascotia.
The removal of OBU exemption would mean the imposition of additional taxes over and above the 10-percent tax on interest income paid by foreign banks. Congress passed the law that reinstated all other taxes that local banks pay, including taxes on income, documentary stamps and profit remittances.
According to some legislators, there was no intention to remove the tax-exempt status of foreign banks but an "oversight" could result in overtaxing of OBUs and FCDUs while making other Asian countries seem more hospitable and attractive. "The loss of tax exemption simply due to an inadvertent omission will render the operations of FCDUs and OBUs unsustainable and will have serious economic consequences for the country," said BSP Governor Rafael B. Buenaventura.
Earlier, Buenaventura said the failure to reinstate the previous tax-exempt status of dollar deposits would drive away OBUs and discourage FCDUs in the country. In turn, this would make the local economy susceptible to financial shocks brought about by political or economic crises.
Buenaventura said the banking systemís FCDU base, which effectively serves as a form of secondary reserves, has helped stabilize the local financial system during political or economic crises. This base is largely composed of dollar deposits by residents, in particular accounts of overseas Filipino workers (OFWs). Ė Des Ferriols
Reported by: Sol Jose Vanzi
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