1. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. ASEAN Economic Community and the Philippine Banking Sector …and what it means to Philippine Entrepreneurs Marc Bautista, CFA Head of Research, Metrobank

2. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Framing The Issue The Asean Economic Community (AEC) by 2015 What is it? What is the impact to the Philippines?

3. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. ASEAN Economic Community (2015) What are the aims? Single market and production base (free flow of goods & services) Highly competitive economic region Region of equitable economic development Full integration to the global economy

4. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Source: IMF World Economic Outlook April 2015

5. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. 5 STRATEGIC APPROACH Single market and production base Highly competitive economic region Region of equitable economic development Full integration to the global economy FREE FLOW OF: Goods Services Investment Capital Skilled labor Priority Integration Sectors Food, Agri, & Forestry Competition policy Consumer protection Intellectual property rights Infrastructure development (transport, energy, mineral, ICT) Taxation E-commerce SME development Initiatives for ASEAN integration External relations and global supply networks

6. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors.

7. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. PHILIPPINES Source: Focus Economics Consensus Asia, June 2015

8. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. PHILIPPINES Source: Focus Economics Consensus Asia, June 2015

9. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. PHILIPPINES Source: Focus Economics Consensus Asia, June 2015

10. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. PHILIPPINES Source: Focus Economics Consensus Asia, June 2015

11. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. INDONESIA Source: Focus Economics Consensus Asia, June 2015

12. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. INDONESIA Source: Focus Economics Consensus Asia, June 2015

13. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. INDONESIA Source: Focus Economics Consensus Asia, June 2015

14. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. INDONESIA Source: Focus Economics Consensus Asia, June 2015

15. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. THAILAND Source: Focus Economics Consensus Asia, June 2015

16. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. THAILAND Source: Focus Economics Consensus Asia, June 2015

17. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. THAILAND Source: Focus Economics Consensus Asia, June 2015

18. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. THAILAND Source: Focus Economics Consensus Asia, June 2015

19. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. MALAYSIA Source: Focus Economics Consensus Asia, June 2015

20. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. MALAYSIA Source: Focus Economics Consensus Asia, June 2015

21. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. MALAYSIA Source: Focus Economics Consensus Asia, June 2015

22. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. MALAYSIA Source: Focus Economics Consensus Asia, June 2015

23. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. SINGAPORE Source: Focus Economics Consensus Asia, June 2015

24. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. SINGAPORE Source: Focus Economics Consensus Asia, June 2015

25. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. SINGAPORE Source: Focus Economics Consensus Asia, June 2015

26. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. SINGAPORE Source: Focus Economics Consensus Asia, June 2015

27. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. VIETNAM Source: Focus Economics Consensus Asia, June 2015

28. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. VIETNAM Source: Focus Economics Consensus Asia, June 2015

29. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. VIETNAM Source: Focus Economics Consensus Asia, June 2015

30. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. VIETNAM Source: Focus Economics Consensus Asia, June 2015

31. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Key Take-aways The AEC is to be regarded as a unit-whole that – Has internal markets worth more than 2Tr USD – Trades externally with other major economies Members of AEC actually trade more heavily with non-AEC members There are as much opportunities as there are threats – Need to view the AEC as a “local market” upon full-integration

32. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. What has been done so far locally towards integration? Easier access of foreign goods and services (tariff reduction, easing of foreign ownership rules) Steps to make local and export-oriented industries more competitive

33. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. All ASEAN goods at 0% CEPT except for sensitive list ITEMSMFN (in-quota) CEPT 20102011201220132014 2015 onwards Swine (live & meat)30 5 Poultry (live)35 Poultry (meat)40 Cassava40 Sweet potatoes40 Maize35 Sugar5038 2818105 Rice (highly sensitive) 2012-2013 – 40 2014-2015 – 50 40 35 PHILIPPINE SENSITIVE LIST Only sugar & rice will experience further tariff reductions until 2015 Source: Tariff Commission

34. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Wholesale & Retail Trade: From 0% to 100% (2002) Private Radio Communication: From 0% to 20% (2002) Rice & Corn (culture, prod’n & processing : From 40% to 100% (2000) subject to conditions Financial Services : Banking Liberalization Law of 2014 Gambling: From 40% to 100% (2012) subject to conditions Transportation: Removal of air route restrictions, RORO to and fro Indonesia, scrapping of common carriers tax Steps towards liberalization were made

35. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. However, 2015 won’t likely be a cliff for the Philippines..

36. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Out of 19 target areas based on AEC aims, there are only 7 areas whose measures were all implemented by ASEAN as of the latest AEC scorecard

37. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. 70% foreign ownership requires Charter Change Priority bills might take longer than 2015 deadline Financial services liberalization will take place "with due respect for national policy objectives Compliance to AEC goals require major legislative action

38. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. No major shifts in trade performance until 2015 Zero tariff mostly enforced in 2010 ASEAN countries not among top 5 import sources Current bilateral agreements not harmonized in the region

39. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. 39 Scorecard for 2008-2011 All measures implemented More than half of measures implemented Less than half of measures implemented Source: ASEAN Secretariat Back to originating slide

40. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. 40 Based on an ADB study, only semi-integration is likely to happen by 2020 ASEAN Banking Framework Source: ADB. “Combined Studies on Assessing the Financial Landscape and Formulating Milestones for Monetary and Financial Integration in ASEAN

41. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Alongside this, steps are being made towards ASEAN Banking Integration by 2020 The goal? Equal ACCESS, TREATMENT, ENVIRONMENT Regulatory harmonization and capacity building Less discrimination against foreign institutions A medium to facilitate integration: Qualified ASEAN Bank (QAB) Member countries should facilitate access of QABs to their own domestic banking market Probable minimum QAB requirements (still on the drawing board): Capital adequacy requirements Consolidation requirements and authority for consolidated supervision Restrictions on large exposure Accounting and transparency requirements Source: ADB. “Combined Studies on Assessing the Financial Landscape and Formulating Milestones for Monetary and Financial Integration in ASEAN

42. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. *source: central bank data of respective countries

43. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Key Take-aways on Banking AEC is local, so start from the immediate local market – for Filipinos, that’s the Philippines itself Important to partner with a bank that has good national coverage, in any country within the AEC – Ease of transacting anywhere by business and AEC Banks

44. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. Metrobank Group (as of Mar 2015) 932 branches 2,128 ATMs Largest Consolidated Domestic Branch Network Largest Consolidated Domestic Branch Network Overseas Network Coverage 32 Branches, subsidiaries, offices Over 125 Remittance tie-ups Over 190 Remittance agents

45. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. In Summary… AEC is a marathon… 2015 just marks the start of the marathon Still a long way off towards full-integration… perhaps 2025 and up for “almost-full integration” Trade liberalization happened already in 2010 for the Philippines QABs will happen earlier than expected full integration, around 2019-2020, thus the need to prepare businesses for AEC banking transactions

46. © 2012 Metropolitan Bank & Trust Company I Research Department I Strategic Planning Division. This document is for internal use only and may contain privileged, proprietary, or otherwise private information. It must not be released to other parties in whatever form without prior consent of the authors. END OF PRESENTATION The report above is circulated for general information only. The opinions expressed are solely those of the contributors and are based on prevailing market conditions and public sources that are believed to be reliable. Metrobank and the report contributors/support staff do not make any guarantees or representation as to the accuracy, completeness or suitability of this report. The report may contain confidential or legally privileged material and may not be copied, redistributed, or published without prior written consent. Opinions or strategies contained in this publication may change without prior notice and should not take the place of professional investment advice or sound judgment on the part of the reader. DISCLAIMER INFORMATION