Rural banks look for ‘knights’ to avoid extinction

By Jerry Maglunog

The 512 rural banks (RBs), fast becoming an endangered breed, are mostly in dire need of white knights, according to the president of the Rural Bankers’ Association of the Philippines (RBAP).

“If help is needed, probably we can only pray that foreign investors come in, so that most of our dwindling members will be saved,” RBAP President Enrique Abellana said.

Abellana also said the mushrooming number of government-owned banks competing with RBs in providing loans to the unbanked sector of the population has added more uncertainty to the already depleted RB sector.

“If a GFI (government financial institution) enters our area, we would be left with no defenses; we cannot afford to bring down interest rates like they do just to attract borrowers,” Abellana said.

He said only the proposal of the Financial Executives of the Philippines to let unlisted firms raise equity at the stock market and the entry of foreign investors can save RBs from diminshing further.

“The foreign investors who will put in money could be our own relatives,” he said.

The number of RBs operating in the country continued to dwindle in the last decade prompting regulators to work overtime to save the remaining RBs. In 2002, then RBAP President Ives Nisce said there were more than 800 RBs.

Asked what could be the reason for the continuing drop in the number of RBs, the president of Rang-Ay Bank, one of the strongest RBs in Luzon, said it could be due to mismanagement or the lack of capability to raise funds.

“Many of our members have limited operations, limited capital. We cannot do what a UKB can do,” Nisce said.

Monetary Board Member Philip Medalla said the stiff competition in the RB industry could also be one of the reasons many banks in this classification fall into under the receivership of the Philippine Deposit Insurance Corp.

“Remote-control management is bad,” Medalla, a former Neda director- general, said, referring to the owners who are abroad and who don’t know much about banking but manage it far from home.

The MB member said since many owners don’t understand much about banking, many of them are shocked when informed that the bank is about to go bankrupt.

“Then here we are telling them to add capital but they don’t follow. Receivership follows if they fail to comply with what the Prompt and Corrective Action board tells,” he said.

The latest data show the BSP has placed 306 banks—mostly RBs—under PCA. There are two basic red flags before a bank can be placed at PCA—high non-performing loan and low capital adequacy ratio.