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Keeping up with the times

With the rapid advancements in financial systems in both the domestic and global arena, it becomes imperative for the Bangko Sentral ng Pilipinas (BSP) to be attuned with the times. Not only does it need to “ride on the waves” of technology, but it should also adopt internationally accepted principles in both financial and payment systems.

The BSP has been pushing for the amendment of its charter so it can prompt the national government to recapitalize automatically every time its capital reaches dangerously low levels. Through recapitalization, banking regulators—like BSP—will further increase the stability of the sector especially of rural banks so that they are able to raise capital themselves after they reform their corporate structure. By beefing up the rural banks’ capital, they are placed in a better position to withstand any losses and liquidity risks.

Over the years, the BSP has played a crucial role in ensuring the stability of the rural banking industry. Under its leadership and partnership with the Rural Bankers Association of the Philippines and the Philippine Deposit Insurance Corp., the public has been assured of the financial integrity and strengthened financial inclusion particularly in rural banks. In fact, the BSP is one of the first central banks in the world to have an office dedicated to the pursuit of financial inclusion.

The whole rural banking industry has been an active advocate of financial inclusion in the country. It is through rural banks that those that are “unbanked and underbanked” have gained access to financial services. Despite geographical hindrances, rural banks have persevered in reaching out to the poor market, through the full utilization of mobile banking, microfinance and micro insurance.

For instance, the BSP authorized rural banks to make equity investments in ATM networks through Circular 563 and engage in limited trust activities under Circular 583 in 2007. The following year, qualified rural banks were even allowed to participate in select derivatives activities under Circular 594.

In 2009, the BSP issued Circular 649, or the electronic money circular, which provides the regulatory framework for the fast-growing electronic money business, where rural banks play a central role. This enabled rural banks to leverage their existing offices and deliver their financial services to an even broader market, with potentially greater efficiency and lower costs.

The BSP has also issued regulations that significantly broaden business opportunities for rural and cooperative banks. Under Circulars 678 and 680, covering Housing Microfinance and the Micro-Agri Loan Product, banks are able to manage their microfinance operations better, with a more diversified portfolio and lower risk of business loans applied to agriculture or housing.

Furthermore, the Monetary Board earlier approved the housing microfinance program for rural banks, wherein RBAP will take a leadership role in the qualification or screening process of participating banks that wish to offer housing microfinance.

With these developments in place, it is envisioned that the rural banking industry can guarantee its effectiveness and credibility, through the strengthened institutional framework of the BSP.

An effective industry needs an effective regulator. Anything that will enhance the capability of the BSP will enhance the state of the industry as well.

Published in The Manila Times, 18 April 2013