The Market Monitor Minding the Nation's Business
By Jerry Maglunog
In the late 1980s, there were about 1,200 rural banks that provided credit in the countryside. It was the heyday of the rural-bank industry when fewer than 200 of them had assets of close to P1 billion.
Now, the number of rural banks has dwindled to just 511, according to the latest data of the Rural Bankers’ Association of the Philippines (RBAP).
What caused these banks’ number to shrink, according to RBAP President Enrique Abellana, was primarily the entry of government financial institutions (GFIs) in the rural areas.
Abellana also serves as director of the Rural Bank of Barili (Cebu) Inc. Abellana said these GFIs now offering loans with rock-bottom interest charges are muscling rural banks out of businerss.
“They (GFIs) have plenty of money; they can offer loans for barely one percent interest,” he said. “We cannot do that because we need to live within our means.”
The Bangko Sentral ng Pilipinas (BSP) encourages rural banks to participate in the Comprehensive Program for Rural Banks (CPRB) and the Strengthening Program for Rural Banks-plus (SPRB+) schemes to improve their chances of survival.
“There is no alternative if you are well-capitalized and can offer many services. Banks can do this if they merge as soon as possible,” BSP Deputy Governor Nestor Espenilla Jr. said. BSP data show that nearly 70 percent of banks on the prompt and corrective action (PCA) list are rural banks and cooperative banks.
Those on the PCA list are problematic lenders that were given a timetable to escape being placed under receivership.
Rural banks, however, have a hard time escaping state receivership because of the difficulty of getting additional capitalization.
Even the state-owned Philippine Deposit Insurance Corp. (PDIC), the insurer of banks, is espousing the same thing among rural banks.
PDIC President Cristina Orbeta said there is a massive moral suasion from the PDIC among community lenders to avail themselves of the CPRB, launched by the agency with the BSP last year.
“We have met with several groups of banks, and (are) targeting the smaller ones. A lot of banks have manifested interest,” she added.
“In fact, we have met with eight groups and we’re hoping they can consolidate, so that they can be more resilient, flexible, and then they can be more viable, because one to two unit banks takes a lot of very aggressive business strategy to generate deposits, and make sure that within the next two or three years, they can compete in a very competitive banking system,” the PDIC chief said.
At least five rural banks in the Visayas have signified their intent to submit their formal application for the merger program by January.
It was unclear whether the bank of Abellana is among these banks.
“Hopefully, if the banks are strengthened, there will be fewer closures for the system, and we will have more banks that would cater to the needs of the unbanked and unserved,” Orbeta said.
Last July, the BSP announced the CPRB to prod groups of at least five rural banks located in one area to consolidate and boost their capacity as small-scale lenders.
The CPRB was put up to “further strengthen and enhance the viability of rural banks, given their importance in providing essential financial services to the community,” BSP Memorandum 2015-043 read.
The memorandum sets the guidelines for the availment of the program, and outlines the types of funding support that the government can lend to the banks.
As in the new rules, the small lenders may seek funding help from the program, either by having portions of the costs incurred for financial-advisory services, business-process improvement services, or capacity-building support in studying the consolidation scheme.