GMA backs liberalization of rural banking sector

President Arroyo has endorsed Senate Bill (SB) 442, which seeks to liberalize the operations of rural banks to include their accreditation as collecting agents for govern-ment agencies like the Bureau of Internal Revenue (BIR), as well as increasing the prefer-red borrowers limit to P1 million.

In a letter to Senate Presi-dent Franklin M. Drilon and House Speaker Jose C. de Ve-necia Jr., the Chief Executive certified for "immediate enact-ment" the proposal liberali-zing further the operations of the rural banking sector "as con-duits to invigorate the entre-preneurial spirit . . . ensuring the viability of the small-sized loan borrowers as well as main-stream micro-enterprises."

One key feature of the pro-posed amendments is the inclu-sion of micro, small and medium enterprises as preferred borro-wers, thus increasing the limit of loans from P100,000 to P1 million.

Another critical provision allows rural banks to sell directly to interested buyers agricultural lands acquired through fore-closure of mortgage, but without prejudice to the agrarian reform regulations.

But what excites rural banks most is the provision recognizing them as collecting agents for government entities such as the Social Security System (SSS), Government Services and Insurance System (GSIS), Pag-Ibig Fund, the Bureau of Customs (BOC), and the BIR. The said provision recognizes rural banks as depository of national funds and other municipal, city or provincial funds.

These provisions would assure rural banks of regular income from fee-based activities, which have been limited so far to government financial institutions (GFIs), and a select number of private financial institutions.

Other fee-based activities that could translate into bank earnings are payments for utilities (elec-tricity and water), telecommu-nications companies (like Smart and Globe), remittances, insu-rance, and pre-need.

The bill also states that the reserve requirement imposed on rural banks should be lower than that imposed on commercial and thrift banks for all types of deposits but giving the Monetary Board "the discretion to change the reserve differential for the purpose of promoting and expanding the rural economy."

It likewise provides for unrestricted branching rights in Greater Manila, Cebu and Davao "as long as this falls under the capitalization requirement of thrift banks in the three areas." It also proposes an increase from P50,000 to P1-million loans as free from all charges, including capital gains tax, in relation to its registration with the Register of Deeds.

For over a year, the Rural Bankers Association of the Philippines (RBAP) has been retooling the sector as well as seeking the assistance of government in improving the services that the sector can offer the countryside banking public.

From a mere deposit-taking and loan-extending institution, rural banks have joined the non-government organizations (NGOs) in offering microfinance to the countryside poor, be it agriculture- or urban-based.

In the past two years, 21 rural banks were closed due to financial difficulties. But the number of rural banks nationwide hardly changed as several banks classified with the thrift category opted to be reclassified as a rural bank due to the banks’ inability to raise their capital based on standards of the Bangko Sentral ng Pilipinas (BSP).