Prior to 1995, only four (4) foreign banks were operating in the Philippines. With the enactment of Republic Act No. 7721, "An Act of Liberalizing the Entry and Scope of Operations of Foreign Banks in the Philippines for other Purposes", new foreign banks are now allowed to operate in the Philippines. Hence, a study on the effect of liberalizing the entry of foreign banks becomes necessary. For this purpose, an economic analysis was conducted to determine the status, services, market feature, productivity and policy action of existing banks both foreign and local. A cross-section analysis of data was utilized using sixteen (16) local expanded commercial banks and ten (10) foreign banks. Statistical tools used were regression analysis, correlation, chi-square among others. Results of the study yielded empirical evidences on the effect of the entry of foreign banks on local commercial banks in terms of heightened competition, manifested in competitive interest rates and innovative products and services. This study would be used as baseline data for the Bangko Sentral ng Pilipinas, the local banking industry, the foreign banks, reserachers in the filed of Economics and Finance.