Extended LBP services threatening rural banks

By Jerry Maglunog 

Rural banks (RBs) are ramping up their services amid competition from a state-owned universal bank that has penetrated the micro loan market targeting public-school teachers. 

Rural Bankers’ Association of the Philippines (RBAP) President Enrique Abellana said he is drafting some measures that he intends to circulate among fellow RB executives as a way of avoiding bankruptcy, due to the stiff competition posed by the government-owned bank.

“We are threatened; we must bring our acts together,” said Abellana, also the director and audit committee member of the Rural Bank of Barili (Cebu) Inc., one of the most liquid RBs in the Visayas.

He said the recent move of the Land Bank of the Philippines (LBP) to offer micro loans to teachers is contrary to its latest role as one of the implementors of the comprehensive program for rural banks (CPRB).

Besides, Abellana said, Presidential Decree 251 of 1973, which revitalized the LBP by making it a unversal bank with a social mission to spur countryside development, while expanding its powers to lend, did not say it can service teachers.

“This decree does not say it can offer loans to teachers,” said the RBAP official. “Even its charter doesn’t say it is allowed to offer loans to teachers because there is already the DepEd cooperative program.”

Among Abellana’s proposed measures to save rural banks is to encourage them to offer attractive loan packages to keep their clients from migrating to larger lenders.

The tenor of the loans must also be attractive so that loan seekers would not feel harassed in meeting repayments, he said. “Improve our service. That is the best we can do,” he added.

Abellana said he will also encourage RBAP members to diversify by offering other products, such as microinsurance, home-renovation loan and pensioners’ loan. The banks’ needed capital to offer these products is also crucial, he said.

Nearly 70 percent of the 512 existing rural banks have no more than three branches. Opening a new branch these days requires at least P10 million, after the Bangko Sentral ng Pilipinas (BSP) raised the minimum capital requirement on RBs opening branches in fifth-class municipalities.

The initial minimum capital requirement for RBs in first-class cities, like those in the National Capital Region, is now P50 million.

“It’s really unfair to us. They (LBP) have plenty of money, as government agencies deposit their funds in this bank; the government can also print money, plus they (LBP) have billions of pesos of aid from other countries,” the official said.

“That is now my agenda,” Abellana said, referring to the strengthening of RBs in the face of the stiff competition posed by the state bank, which he said has over P800 billion in assets and a loan portfolio of over P400 billion that is mostly related to commercial farming.

He said the LBP was created to serve the needs of farmers and help in the land reform-related programs of the government, like offering loans to buy seeds and pesticides, not to offer loans to teachers.

Several inquiries were sent to Gilda Pico, president and chief executive officer of the bank, via text, but she didn’t reply.

A look at its website, however, showed that LBP is classified as a specialized government bank with the license of a universal bank.

Its unibank license explains why majority of its loans are by businesses devoted to commercial farming. Its chairman since its creation in 1963 is the current secretary of finance.

On October 21, 1972, Presidential Decree 27, or the Land Reform Program law, signed by then-President Ferdinand E. Marcos, emancipated all tenant farmers working on private agricultural lands devoted to rice and corn, whether working on a landed estate or not.

The system was implemented through a system of sharecropping or lease-tenancy. The bank was tasked to collect 15- year land amortizations from beneficiaries at the cost of the value of the land, plus 6 percent annual interest.

By 1973, the LBP fell into financial distress. It lacked the resources and the capital needed to implement the land-reform program and the structure to implement the program efficiently.

On July 21, 1973, Marcos signed Presidential Decree 251, which revitalized the LBP. The decree granted the bank a universal banking license (the first bank in the Philippines to be issued such a license) with a social mission to spur countryside development.

The decree expanded the LBP’s powers to include lending for agricultural, industrial, homebuilding and home-financing projects and other productive enterprises, as well as lending to farmers’ cooperatives and associations to facilitate production, marketing of crops and acquisition of essential commodities.

This decree does not say it can offer loans to teachers, Abellana said. “Even its charter doesn’t say it is allowed to offer loans to teachers because there is already the DepEd cooperative program.”

The bank is also required by the decree to provide timely and adequate support in all phases involved in the execution of agrarian reform and also increased its authorized capital to P3 billion.

It also became exempted from all national, provincial, city and municipal taxes and assessments.

The LBP was reorganized in 1977 when it was divided into three sectors to better assess the needs of its customers. It was divided into agrarian, banking and operations sectors to strengthen operations and ensure long-term viability.