Rural banks prepare for entry of foreign investors

By Lawrence Agcaoili (The Philippine Star) Updated August 08, 2011 12:00 AM Comments (0)

MANILA, Philippines - The rural banking industry is preparing for the possible entry of foreign investors once the proposed bill of Leyte Rep. Sergio Apostol that would allow foreigners to buy a 40 percent stake in rural banks is passed into law.

Rural Bankers Association of the Philippines president Ian Eric Pama said rural banks operating in the country intend to surpass the current capital adequacy ratio of the industry currently pegged at 19 percent to attract foreign investors.

“We need to ensure that all our members are healthy and viable in order to welcome in the possibility of having foreign partners,” he stressed.

The industry’s capitalization is way above the 10 percent requirement of the BSP and the international standard of eight percent under the Basel Accord.

Pama, who is also president of Iloilo-based Valiant Rural Bank Inc., said the 2011-2012 board of directors of RBAP would work closely with Congress and the Bangko Sentral ng Pilipinas (BSP) to pave the way for the entry of foreign capital into rural banks.

Apostol, chairman of the committee on banks and financial intermediaries of the House of Representatives, filed House Bill 4805 seeking to amend Republic Act 7353 or the Rural Bank Act of 1992 to allow 40 percent foreign ownership for rural banks.

“As we continue to merge and consolidate and gain momentum, I believe that it will only be a matter of time when we shall be allowed and welcome foreign equity that will make our individual banks even more relevant to our customers,” he added.

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“I also believe that we must focus on providing innovative services and loans for the SME’s and the micro entrepreneurs to invigorate business activities in our provinces. We cannot continuously depend upon the National Government to invigorate local economic activity,” Pama said.

Pama believes that foreign equity would help rural banks expand their operations to become a major stimulus for microfinance, micro-enterprise or small and medium sized enterprises (SMEs), and agriculture sectors thereby serving as catalysts in countryside development.

He pointed out that the industry releases approximately P2.7 billion loans every month as working capital for micro-entrepreneurs compared to a loan portfolio of P8 billion for the microenterprise sector as of end-2008.

The BSP is supporting the infusion of foreign capital into the rural banking industry in order to boost the competitiveness and financial muscle of rural banks.

“We support that for them to acquire additional capital and technology,” BSP Governor Amando M. Tetangco Jr. said earlier.

The total number of banks operating in the Philippines went down by 33 to 746 in the first quarter of the year from 779 in the same quarter last year after the BSP stepped up its campaign against problematic banks while major players in the banking industry continued to consolidate.

Data showed that the number of universal and commercial banks was steady at 38 while the number of thrift banks was also unchanged at 73.

However, the number of rural banks decreased to 635 in the first three months of the year compared to 667 in the same period last year and 647 as of end-December due primarily to the closure of weaker banks.

The BSP reported that the number of branches of universal and commercial banks, thrift banks, and rural banks increased by 240 to 8,124 in the first quarter of the year from 7,884 in the same period in last year.