Development banks: The key to uplifting the economy

We were invited by our friend, Development Bank of the Philippines (DBP) president and CEO Rey David, to their 63rd anniversary celebration yesterday where PGMA also unveiled the scale model of the new DBP Green Building at Fort Bonifacio in Taguig (which will be constructed by Palafox Associates). From its inception in 1947, the DBP has become the country’s most progressive development banking institution.

Credit in large part goes to Rey, who in barely six years has transformed the institution into one of the best managed state corporations today. Before he took over in 2004, the bank was making a little over P2 billion in profits, but in just his first year at the helm, DBP reported a net income of P3.8 billion. In 2007, it earned P10 billion in profits with P48.17 billion in total revenues.

But perhaps what is more significant than DBP’s success is the fact that the institution has been a key driver for accelerating economic development particularly in the countryside. The government-owned bank has been providing financial assistance not only to big but small and medium-scale businesses through loans, and even technical support in terms of marketing, research and human resources development, among others.

At 63, the DBP is a relatively young institution. As its chairman Pat Sto. Tomas said, it has yet to achieve its full potential as a government-owned and controlled corporation. She also cited the bank’s “altruistic mindset” as seen in the loans and various forms of assistance it extends both to communities and businesses alike.

As Rey stressed, the bottom line is to benefit the people –who are actually the bank’s stakeholders. Rey, whose stint with Citibank as vice president and treasurer has undoubtedly honed his talent as a banker, points out that the DBP is helping fuel the growth of the economy through “assistance to strategic sectors particularly in infrastructure and logistics, SMEs, social services such as healthcare, education and the environment.”

As a matter of fact, DBP has been dubbed as the country’s “big rural bank” on account of the individual loans it lends to farmers, fisher folk and small entrepreneurs especially in the rural areas of the country. One of the objectives is also to increase rural productivity by giving farmers and other producers the means to bring their products to the market in many parts of the country. The bank accomplishes this by providing loans to build, restructure and modernize infrastructure networks, transport and logistics facilities – which is really is in line with the government’s anti-poverty program.

It’s no secret that a lot of poor Filipinos who want to start small businesses do not have the necessary capital, so many of them resort to borrowing from usurious money-lenders or the so-called “5-6” creditors, trapping them in an endless cycle of credit. The presence of rural banks have helped a lot in reducing poverty because they provide loans as small as P5,000, even P2,000, with low interest rates to help a micro-entrepreneur start up his small enterprise. These banks serve a segment that big banks do not reach at all either because they are too small (and therefore expensive to maintain) or are too risky because more often than not, many of the borrowers do not have the corresponding collateral to cover their loans.

Not a lot of people are aware however that the creation of rural banks was the brainchild of Eulogio “Amang” Rodriguez who authored the Rural Banking Act of 1952 or RA 720. Putting his money where his mouth is, Amang Rodriguez set out to establish the country’s first rural bank and soon, others followed suit. Today, there are more than 700 rural banks, 650 of which are members of the Rural Bankers Association of the Philippines or RBAP, whose more than 2,000 branches are spread all over the country.

Just recently, RBAP has been pushing for the entry of foreign investors into the rural banking sector in order for rural banks to benefit from international capital. Philippine banking laws allows foreign investments but only in thrift, commercial and universal banks – not rural banks, since the Rural Bank Act of 1992 forbids foreign capital infusion.

Fortunately, the Bangko Sentral ng Pilipinas (BSP) seems amenable to the idea of allowing foreign entities to invest in rural banks, perhaps by as much as 40 percent. RBAP says it will actively coordinate with the next Congress for the amendments to the ownership provision of the Rural Banking act in order to “level the playing field” since among local lenders, only rural banks are not allowed to have foreign equity.

No one will argue that rural banks are indeed important partners in development. While there are a lot of NGOs that are reaching out to the marginalized poor in the provinces and in conflict-affected areas, stable development banks with good standing in the industry are in a position to do so much more. But there is no denying that some rural banks have also ruined the future of farmers, teachers, fishermen, janitors, market vendors and ordinary folks by playing around with these people’s hard-earned savings and using them in self-dealing and fraudulent transactions.

To this day, many victims of the Legacy Group of Celso delos Angeles have yet to recover from their losses – many of whom put their life savings into the Legacy banks and pre-need companies. This is the reason why BSP has to come down hard on these erring financial institutions and implement stricter regulations and better monitoring to make sure that these opportunistic lenders will not be able to victimize Filipinos once again. After all, the biggest crimes are those that exploit and fool the smallest and the poorest of the people.

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