Empowering rural banks

The country can expect a stronger rural banks at par with commercial banks in terms of product and services that it can provide to its clientele with the recent passage of Republic Act (R.A.) 10574, which allows foreign investments in rural banks.

R.A. 10574, or “An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks, Amending R.A. 7353, Otherwise Known as the Rural Bank Act of 1992 as amended and For Other Purposes,” is a consolidation of House Bill 5360 as amended and Senate Bill 3282 as amended was passed into law on May 24, 2013, lifting the limit on bank ownership that has been a hindrance for the expansion of operations of rural banks for more than two decades.

The passage of the said bill is timely, as the country has been consistently receiving positive ratings and economic outlooks from international financial institutions such as the World Bank, Moody’s Investor Service and Fitch Ratings.

Recently, Standard and Poor’s also gave the Philippines a credit upgrade rating of BBB Minus from BB Plus, which is the minimum investment grade. Having such, the country has become more attractive to foreign investors as such ratings reflect a stable economy due to the existence of sound economic policies.

Likewise, the new law will foster a favorable economic environment in the countryside as foreign investors now have the option to infuse additional capital to rural banks. Rural banks, having financial stability through additional foreign capital, will be able to reach more to the unbanked and the under-served in the rural areas.

The law will also level the playing field for rural banks and bigger commercial banks, as rural banks can now take foreign investments, which was previously exclusive to thrift and commercial banks. With the stable economic status that the country is experiencing, foreign investments and partnerships are almost within reach of rural banks.

Among the key features of the new law is the increase of voting stocks that foreign investors can own in a rural bank. Under the law, non-Filipino investors are now allowed to own, acquire or purchase up to 60 percent of voting stocks in rural banks, provided that the percentage of foreign-owned stocks will be determined by the citizenship of the individual or corporate stockholders of the bank.

It also allows foreign investors to sit on the banks’ Board of Directors, given that their participation in the board shall be proportionate to their investment in the bank.

The rural banking industry is in high hopes that the Aquino administration will remain supportive to developments in the countryside through such laws. The industry gives credit to the legislators from both the upper and lower chambers of Congress, as well as the Bangko Sentral ng Pilipinas and other stakeholders who carried off the task of ensuring the measure will be passed into law.

Published in The Manila Times, 30 May 2013