Gen. Hotchkiss’ Speech during the Mindanao Credit Conference_March 2006

Message of RBAP President Gen. William K. Hotchkiss III during the Mindanao Management Conference from March 17-18, 2006

CARAGA Rural Bankers Federation
March 17-18, 2006

Fellow Rural Bankers,

My congratulations to the CARAGA Rural Bankers Federation for hosting the 27th Mindanao Credit Conference. As a rural banker from CARAGA myself, I hold a special affinity with the Mindanao federations as well as with your aspirations to improve the quality of life of our constituents in the region.

I laud and support your theme “Rural Banks: Working Together to Eradicate Poverty in Mindanao”because of its contemporary resonance in the role of rural banks as conduits for the growth of local economies and as engines of national development. For over 50 years, we have fueled the economic activities in many rural locations benefiting the lives of the farmers, the fisherfolks, and the small entrepreneurs. Microfinance – the current buzzword in people empowerment and a major thrust to eradicate poverty, was born and nurtured among the rural banks in Mindanao seven (7) years ago through the Microenterprise Access to Banking Services (MABS) program and the PCFC. Today, the MABS approach is recognized as a leading microfinance technology in individual lending and PCFC for group lending. Both cater to the financial needs of a broad clientele base in the rural communities, and are closely identified with our prestigious organization, the Rural Bankers Association of the Philippines. This accomplishment has placed us squarely in front of the fight against poverty.

As we continuously respond to this challenge with forthright resolution and commitment, we equally face the daunting task of preserving our gains as a banking sector, and sustaining our momentum amidst the radically altered local and global financial environments.

Despite a financial condition that was largely in flux, the asset performance of the Mindanao region as of September 2005 reached 20 billion pesos or a share of 18% to the total assets of the rural banking industry. The gross loans from our region accounted to 14 billion pesos or 20% share of the total gross loans granted by our sector. The total deposits of Mindanao reached 12 billion pesos, an encouraging 15% share of the total deposit level of our sector for the same period. Net ROPOA was posted at 71 million pesos or 9% share of the total net ROPOA of the RB system. It is worth noting that the capital share of Mindanao has reached 24% or roughly 4 billion pesos. These financial indicators define the momentum of the operation of our banking sector which augur well for the growth impetus of our region.

Paramount in this effort is capability-building to make our institution resilient to the increasingly demanding regulatory and market realities. The connectivity to global business must be exploited and harnessed for the sustained viability of rural banks as economic outposts of prosperity and peace in the countryside.

As the president of RBAP, I am pleased to apprise you with the new developments in our illustrious Association. [Add comment on the lifting of moratorium on bank branching policy] Another new development is the Renovation of the RBAP head office which will be completed by end-April 2006. We have made our premises conform with the proactive stance of our sector – a well-laid out office space with modular fixtures that exude efficiency and professionalism. To complement this physical change, we have engaged the services of a Management Consultant and a Human Resource Consultant to improve the management and human resources functions of the RBAP staff respectively. The Management Consultant was tasked to strengthen the institutional capacity of RBAP through regulatory empowerment and revenue generation. The HR Consultant was primarily asked to evaluate the organizational structure of RBAP to align the RBAP staff with those of the other sector in the Philippine banking system in terms of job description and responsibilities, salary grades, benefits, representation among others to enable them to provide better and quality services to our member-banks.

As far as our regular in-house training program is concerned, we have conducted 28 offerings from July 2005 to March 2006, some of which were co-hosted by RBAP federations. We interface with the BSP Institute and other related departments to coordinate the implementation of their various training courses with ours to come up with a coherent, snag-free implementation of our training program. We are developing new courses to enhance the operations of rural banks such as the bank security module and the international auditing standards (IAS). Likewise we are tapping the talent and expertise of more lecturers to conduct our training courses.

In technology, we, in partnership with MABS and Globe itself have undertaken the successful nationwide roll-out of the RBAP Text A Payment and G-Cash Services last November 2005 with 187 participating banks and more than 300 participants. This innovative banking service, as you may have been informed, transforms the mobile phone into an “electronic wallet” to pay bills, buy merchandise, amortize loans, and remit money, and these are just initial applications. This versatile technology platform can be utilized to enhance the delivery of many more banking services. The RBAP Text A Payment and G-Cash Services is a new product that RBs can offer to their clients which incidentally has earned the distinct recognition as being “a first” both in the local banking industry as well as abroad. It merited the academic interest of the Boston-based Harvard Business School to study and write a full case material on this novel banking service for the use of their graduate students. We must therefore take pride as we are the pioneers of this innovative financial service. To date, six (6) rural banks have already been approved to offer G Cash services, 7 others are expected to complete their documentary requirements in the coming week, and 10 more have filed their application with RBAP to participate in the program.

To add more impetus to the RBAP TAP program, we have ensured the availability of mobile phones for our clients through the Phonekit Financing Program. An initial 3 models of Globe handsets with price per unit ranging from P 3,000 to P 5,000, have been offered by participating RBs on a back-to-back loan basis against the borrowers’ deposit. Todate, 40 RBs have enlisted in the program covering 189 locations. The program seemed to have stirred the interest of our clients judging from the number of availment with the highest monthly record of 140 handsets in one rural bank alone. In response to the clamor for more mobile phones to be offered under the program, Globe has considered an additional 4 more models to be offered by the program. Also, we have reports that the novelty of this program has generated a discernible increase in walk-in traffic of clients in most participating RBs. [Add comment on RBs as distributors of Auto Load Max or A-Max].

Alongside these exciting projects are the new initiatives of our Association which we are persistently pursuing in order to bring rural banking to a higher level of operational efficiency, profitability. and stature. In this regard, I am elated and excited to inform you that the Monetary Board and the Bangko Sentral ng Pilipinas last March 13, 2006 has allowed rural banks to handle foreign currency in recognition of its vital role in encouraging overseas Filipino workers (OFWs) to send their remittances through formal channels, and more importantly, direct to their municipalities for the immediate benefit of their families and communities. Further, the rural banks have been allowed to take foreign currency deposits and to lend the same as a banking service. Moreover, they can also trade in foreign currency and, I suppose, take positions in the foreign exchange market. Consequently, rural banks can organize their own Foreign Currency Deposit Units (FCDUs). With certainty, this development has ushered the rural banking system into an entirely new and challenging field affirming its bid to be connected to the global economic system. Likewise, it has created numerous linkages that will effectively transform rural banks into community banking institutions in the countryside. We are still evaluating the tremendous impact of this empowering measure as we are overwhelmed by the prospects that it brings to the rural banking system in general, and the individual rural banks in particular. There are stringent criteria imposed by the BSP for RBs that are interested to benefit from this initiative, for example, a minimum capitalization of P 20 million plus the standard CAMELS rating of 3. But this is a small price to pay for the staggering possibilities that this opportunity offers. In the end, we all are bound to collectively gain from this enabling development.

Through insightful planning, we have prepared the infrastructure for this eventuality. We have the RBAP TAP with G-Cash function service technology in place that serves as our remittance platform. Our partnership with the Economic Resource Center for Overseas Filipinos (ERCOF), an NGO with direct access to Filipino communities worldwide, is our conduit to the thriving remittance business. Our partnership with First Metro Investment Corporation as well as other potential collaborators like multinational banks such as CitiGroup and Deutsche Bank will be tapped to assist us in acquiring the knowledge necessary in managing the treasury function in banking and the remittance business as well.

This development is but a step in our continuing journey to empower the rural banking system, and in so doing, nurture the growth of the 744 rural banks and fuel wealth generation in our local economies. High on our list of related efforts are:

Amendments to the Rural Banking Act of 1992 to afford rural banks an open, broader, and more level playing field in relation to its clientele and its counterparts in the Philippine banking system

The strengthening of the capital structure of RBs through any of these options: 1) by allowing the entry of foreign capital into the rural banking system, 2) re-deploying excess liquidity within the rural banking system, and 3) accessing the financial capacity of commercial banks to lend working capital loans to rural banks as an agri-agra compliance mechanism, and

The creation of mechanisms to allow RBs the flexibility to engage in a broadened scope and definition of “allied undertakings”

These initiatives, however, must be complemented by a strong self-criticism on the role that each one of us performs for our Association. We may achieve significant results in our advocacy campaigns. We may aim to attain greater stature among our counterparts in the Philippine banking community. We may be able to deliver to our clientele an increasing number of products and services. We may even transform ourselves from what we are today – rural banks into a more profound and contemporary structure of enhanced value and role – into community banks. But all these efforts will be for naught if we, as individual members of our cherished Association, could not rise above our own and our individual bank’s interests. We must understand and internalize that the existence, even the survival of our Association, is founded on the strength of its collectivity – the good of all … of everyone. If we allow parochial mentality driven by geographical dominance, personal loyalties, group factionalism, and even a notion of being primus inter pares, we have written the death sentence to the over half-a-century existence of our Association. We should have by then squandered the promise of the generations of rural bankers before us, and have wasted all the years we have spent together toiling and building our Association.

The key to the future of our Association lies in its leadership – an Enlightened and the Servant type. We must look among us and realize that the men and women who should lead us are those that would be first in terms of service, dedication, and commitment, putting the interests of the Association above their own personal interests or the welfare of their own banks. For when one becomes the steward of the Association, it is his/her duty to see to the welfare of the members above his/her own. One should not see the Association as an enclave to roost on or a fiefdom to rule but rather as a home to nurture and protect. It is this brand of leadership that will garner for us the dignity we deserve and the respect that we will earn.

All our initiatives will have a more meaningful expression if we can define leadership in this Enlightened and Servant manner.

As we remain focused and determined in our struggle against poverty for the welfare of our country and the Filipino people, we must supplement such laudable intent with vigorous diligence to ensure the existence of our Association through an enduring brand of member-centered stewardship. This is the ultimate goal we cannot compromise, and even as we should range our banking resources and expertise in winning our war against poverty, we must forthright be committed in ensuring and securing the existence and growth of our Association.

Once again, my salutations to the officers and members of the federations in Mindanao especially to the CARAGA Rural Bankers Federation.

Mabuhay tayong lahat !

Gen. William K Hotchkiss III, AFP (Ret.)
President, RBAP