Bunye: Strengthening the rural banks

THE role of rural banks in a predominantly agricultural country like the Philippines cannot be overestimated.

The rural banking system provides essential services in the economy, particularly in making adequate banking services available to the local communities and specialized or niche markets such as microfinance clients.

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Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. has often referred to rural banks as the "natural frontliners" in the BSP's national program to broaden and deepen the reach of financial services to local communities.

The recent launching by the BSP and the Philippine Deposit Insurance Corporation (PDIC) of the Strengthening Program for Rural Banks (SPRB) provides greater impetus to our rural banking system.

According to Tetangco, it is incumbent upon regulators such as the BSP and PDIC to ensure that the strength and viability of this critical segment of the Philippine banking system is sustained, especially during these challenging times.

The BSP head believes that a stronger rural banking system can be achieved by promoting mergers and consolidations between or among rural banks and eligible strategic third party investors (STPIs).

Mergers and consolidations will result in higher capitalization, which in turn would enable rural banks to diversify their portfolios to reduce risk, fund growth and innovation, and expand their reach throughout the country. Merged rural banks are also expected to achieve economies of scale and to attract better skills.

The SPRB has two essential components: 1. capital augmentation and 2. regulatory relief.

The PDIC will take charge of the capital augmentation and direct loan component by providing financial assistance to rural banks.

The BSP, on the other hand, will provide merger and consolidation incentives such as the conversion and opening/relocation of head offices, branches and extension offices; the waiver of penalties; and other incentives pertaining to rediscounting and emergency loans.

Without any doubt, the indispensable support of the Rural Bankers Association of the Philippines (RBAP) will be very important.

Over the years, well-managed rural banks have made significant strides as seen in the growth of branch networks, installation of ATM machines, increasing use of electronic banking, increase in deposits and loans, and a better ROE.

But with the SPRB in place, the rural banking sector is projected to move forward on an even stronger footing.

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