Rural banks ‘facing challenges’

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Tuesday, July 8, 2014

DESPITE steady growth in the resources of rural banks, Bangko Sentral ng Pilipinas Governor Amando Tetangco admits that they face increasingly stiff competition from small and big players.

In a speech delivered to an association of rural bankers, Tetangco noted that aside from cooperatives and non-government organizations opening up operations in the countryside, rural banks also have to contend with an increasing presence of large banks intent on expanding to rural areas.

Legislations have also been passed allowing foreign equity in rural banks.


For Tetangco, this means rural banks have to consider their options–whether it means operating in their own, accepting new investors, local or foreign, or looking for mergers.

Not just size

“In making your decision, it is important to remember that size is not the only determinant in facing competition. You may not be the biggest in your area, but you certainly know the countryside better than anyone,” he said.

As of March, the total resources of rural banks stood at P209.4 billion, with a growth of 8.8 percent while its loan portfolio increased by 6.5 percent to P138 billion.

Deposits for the sector climbed 10.6 percent to P145 billion. These numbers, he said, are commendable, as these were achieved despite the wide devastation wrought by the two calamities that hit the Visayas last year.

Tetangco assured that many things have been done to ensure the industry is prepared to face changes, starting with the banking reform agenda to strengthen local banks to be responsive to needs of its stakeholders. These include risk management systems, enhancement of corporate governance standards, adoption of international best practices and build-up capital.

He also cited their joint undertaking with the Philippine Deposit Insurance Corp. (PDIC), which strengthens rural banks to minimize bank closures and encourage more mergers, consolidations and acquisitions by third party investors.

He said that as of June 30, seven merger and consolidation applications of 15 banks have been approved by the PDIC and processed by the BSP while five other applications are pending.

Tetangco urged rural bank officials to conduct a review of strengths and weaknesses and identify the needs of constituents while taking into consideration the competition they have around them. He believes that such reviews will show the different requirements of communities in terms of delivery of financial products and services.

He admitted that being in an archipelago with different demographic differences across localities can be significant and could be a stumbling block. However, he also believes it represents opportunities for rural banks.

“Our experience in micro finance and financial inclusion shows that alternative delivery channels are viable. You can therefore find a balance between alternative delivery mechanisms vis-a-vis the brick and mortar approach of traditional branching,” he said.


He said that one approach is more viable than others depending on a locality.

“In the current environment, we do see a silver lining: in the face of rising competition, we see see the market growing as the benefits of development programs and fresh investments increasingly find their way to the countryside.”

He believes infrastructure developments, tourism and the conditional cash transfer program will bring about a positive impact for rural banks, especially in small communities. He said micro finance is a growth opportunity for rural banks, as micro entrepreneurs can emerge as both depositors and investors.

He urged rural banks to boost their operational efficiency, expand their product lines and reach out to more markets. He also asked them to increase their diversity, lower their operating costs and right-size the way they do business.

Published in the Sun.Star Cebu newspaper on July 09, 2014.


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