Overseas lenders Japan-based Mitsubishi UFJ Financial and CIMB Group in Malaysia are reportedly wooing Philippine banks ahead of deregulation that will allow foreign banks to take full control of domestic lenders.

Bankers familiar with the matter said that other global financial firms including private equity firms such as TPG as well as Taiwanese banks are also in queue to exploit the market in the country.

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According to a report, Philippines is gradually emerging as one of Southeast Asia’s most rapidly growing economies; however, its banking sector is highly fragmented and underdeveloped, and is unable to tackle the demand of increasing financial services.

EY Asia financial services leader Keith Pogson was quoted by Reuters as saying that "The Philippines’ banking sector is an attractive market for foreign banks and PE funds because it offers the perfect mix of fast growth in individual wealth and investability."

Under the new banking regulation, Philippine will abolish 60% limitation on foreign ownership and eradicated previous rules that allowed just 10 foreign banks in the country.

The news agency reported that the law has already been passed by Congress, and is waiting for approval of President Benigno Aquino, who has indicated this is likely to come soon.

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Having absolute control of a local bank will enable overseas lenders to integrate a Philippine bank’s operations with their own to capitalize on regional trade flows and serve companies in their home countries that want to invest in the Philippines.

The potential for growth in retail banking may also attract some foreign banks, as 80% of Filipino households still do not have a bank account, despite the growth rate for individual wealth averaging 12% over the last 10 years, which is highest in Asia, according to data from EY and Credit Suisse.