BSP head urges rural banks to clean up balance sheets

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has challenged the country’s rural banks to reform their balance sheets, introduce more banking innovations and build on gains already achieved.

Speaking before the new set of officers and directors of the Rural Bankers Association of the Philippines (RBAP), BSP Governor Amando M. Tetangco Jr. said that the rural banks are the natural frontrunners in extending credit to the countryside, and reach the unbanked segment of society.

But the sector is also a victim of bad perception, helped along by the failure of the banks belonging to the Legacy Group.

“You must have more accessible banking services, more innovative ideas in reaching the poor and the unbanked,” Tetangco added.

Rural banks have improved their performance as reflected by the 12.12-percent return on equity (ROE), outperforming the 11.38 percent of its bigger cousins, the commercial banks.

Data from the Philippine Deposit and Insurance Corp. (PDIC) show that deposits in the rural banking sector grew 12.5 percent in the first three months of 2010 to P117 billion from P104 billion last year.

Double-digit growth in deposits was also recorded in 10 of the 12 regions.

“Rural banks have posted higher growth compared with the commercial and thrift bank in that period,” the PDIC data reported.

But it is not only “bad perception” that is hounding the rural banks. The sector is still generally undercapitalized, as rural bankers themselves admitted as much in a survey conducted by the Rural Bankers Research and Development Foundation (RBRDF) earlier this year.

And the implementation of revised capital regulations of Basel II, and the new risk-weighting regulations for Basel III only adds pressure to the need for more capital.

BSP officials confided that there are at least 28 rural banks that have been placed on prompt and corrective action (PCA), which many believe are tantamount to closure.

Already 10 rural banks have been placed under receivership as of May this year. The annual average is turning out to be a dozen banks, disregarding the aberration over the Legacy controversy.

Rural bankers themselves admit that a third of the 600 or so rural banks are under-capitalized although many still have the ability to raise capital. But the majority of the 200 plus under capitalized rural banks are unaware of their predicament, refuse to raise capital, or do not know how to go about addressing the lack of capital.

RBAP president Corazon Liamzon Miller admitted that there is still a need to educate the hundreds of rural banks about the need for additional capital and the various options in addressing the issue.

“We will conduct road shows to educate our rural banks,” Miller said during the induction of the 2010-2011 officers and directors of RBAP.

Rural banks must raise capital through its stakeholders or invite investors to take a stake. Or they may take the merger and acquisition (M&A) or consolidation route.

Both the BSP and the PDIC are offering options towards raising capital or going the consolidation path.

PDIC executive vice president Imelda Singzon said that they have established the investor-investee held desk, which will electronically match parties that are invested in selling, consolidating or buying.

Singzon said that the process will be confidential but first the interested parties must enroll with the help desk.

Then there is the strengthening program for rural banks (SPRB) financial assistance and regulatory support facility.

The P5-billion, two-year SPRB regulatory support facility is an incentive to rural banks to consolidate its ranks. The funds will be made available to the so-called “white knights” or banks looking for an acquisition or willing to consolidate with a troubled bank.

PDIC will likewise launch its own road show to educate rural bankers about the various ways to raising capital or alternative ways to attain the same using the M&A or consolidation route.