The Market Monitor Minding the Nation's Business
Jerry Maglunog
Most rural banks (RBs) collapse due to mismanagement and cruel dynasty led by kin who run the bank, according to Sen. Sergio Osmena III, chairman of the Senate Committee on Banks and Financial Institutions.
There have been many instances when an RB closed shop because of the mismanagement of those running the bank who are related to each other. Although no bank can be singled out, another banker who used to manage an RB in Sultan Kudarat supported the senator’s conclusion behind an RB’s closure.
“Many of them are like mom-and-pop shops. They run it unprofessionally that’s why they tend to collapse,” said Lourdes Jocelyn Pineda, now president of Rizal Microbank, who once served as Micro Access to Banking Services (MABS) chief for Visayas.
According to Pineda, only RBs that are professionally managed can survive in present day. “Those that are run like sari-sari stores can count their days,” she said.
The unprofessional way of running the bank, coupled with limited operations and access to higher capital, are just some of the reasons many banks in this classification are waning. As of January 31, 2015, there are 535 RBs all over the country.
More than 70 percent of these banks have branches of three or less. With the extension of the strengthening program for rural banks plus, the number of RBs is expected to lessen as it promotes mergers and acquisitions with 50 percent of the needed equity coming from the BSP.
Jose Misael Moraleda, current Rural Bankers’ Association of the Philippines (RBAP) president, said that despite the waning numbers, the mantra of smallest classified banks is not weakening. He said in the countryside, RBs are the only entities people can run to for their financial needs.
Moraleda, president of Camalig Bank, the leading RB in Bicol region, acknowledged that insider abuse occurs mostly in banks considered unprofessionally run by relatives who occupy high position in the bank.
“Dosri (directors, officers, stakeholders and related interests) transactions are now strictly guarded,” Moraleda added. Dosri is the amount allotted by bank that can be borrowed by its top officials.
Juan de Zuniga, former Bangko Sentral ng Pilipinas deputy governor for resource management sector and general counsel, also said that insider abuse is the most common reason for an RB’s closure and placement under the ward of the Philippine Deposit Insurance Corp.
“Some of them are even instructed to do illicit acts by higher-ups with a promise of getting a share of the amount that would be stolen. Although the one being instructed to do so doesn’t want to do it, he has no choice but to follow,” de Zuniga, now a member of the Monetary Board, said.
A source at the PDIC said insider abuse is the reason most RBs collapse. And bank officials usually refuse to hand over their financial statements to BSP officials. “We don’t want bloodshed to happen that’s why we don’t insist,” said former PDIC president and chief executive officer Ricardo Tan in an interview.
Felipe Medalla, a senior MB member, also said majority of banks on the MB’s prompt and corrective action (PCA) list are RBs and cooperative banks. “Most of them are told to increase capital.
If they don’t want to raise capital, it’s tantamount to waiting for their bank to collapse,” Medalla said. So far, there are around 200 banks on the MB’s PCA list. Banks placed on this list have various timetables to get out of the list.
The bad news, according to Medalla, is more often than not, banks placed on this list are unable to get out but placed under PDIC receivership. “The scenario is the bank is in very good standing when the founder is still alive.
“But when it is passed on to the son after the father dies, the new owner manages it via ‘remote control’ because he is in the US. He doesn’t know that those he left to manage the bank are fooling him. That’s when the problem occurs.
When the owner learns, it’s too late,” the MB member said.