Malaya Business Insight: Foreign equity bill to make rural banks more competitive

Sen. Sergio Osmeña III is pushing for the opening of the rural banking industry to foreign ownership of up to 60 percent of the voting stock of an existing rural bank to make the industry healthier and at par with its bigger counterparts.

He said Senate Bill 3282, or “An Act Allowing Infusion of Foreign Equity in the Capital of Rural Banks, Amending Republic Act No. 7353, Otherwise Known as The Rural Banks Act of 1992, As Amended And For Other Purposes,” which he sponsors, aims to open up ownership of rural banks to foreign equity, thus revitalizing the rural banking system and improving access of banking services in rural areas.

“This legislation will stimulate more lively activity among rural banks by creating an environment that is beneficial to foreign investors, local banking patrons, and national economy,” the lawmaker said, during a recent sponsorship speech at the Senate.

Senate Bill 3282 is in substitution of Senate Bill No. 1907 introduced by Sen. Miriam Defensor Santiago and Senate Bill No. 3089 introduced by Sen. Edgardo J. Angara, taking into consideration House Bill No. 5360 introduced by Representatives Sergio Apostol, Rufus Rodriguez, Maximo Rodriguez, Jr., Pedro Romualdo, Roilo Golez, Julieta Cortuna, Isidro Lico, Cresente Paez, Philip Pichay, Arthur Defensor, Jr., Jeci Lapus and Agapito Guanlao.

It seeks to amend Section 4 of R.A. 7353, which restricts ownership of rural banks to Filipino citizens only, by allowing foreign individuals and entities to acquire equity of up to 60 percent in rural banks.

“Rural banks need to look beyond their limited resources and take advantage of funds available elsewhere,” Sen. Osmeña pointed out. “The opportunity to forge international equity partnerships will put rural banks on a level playing field with its thrift and commercial bank counterparts that are able to take in foreign partnerships.”

He explained that a healthier and more competitive rural banking sector, with the benefit of international partnerships, will mean more resources to reach out to the unbanked, underbanked, and the less privileged sector of society.

Sen. Osmeña, chairman of the Senate committee on Banks and Financial Intermediaries, added that foreign equity in rural banks would be a major stimulus for microfinance, micro-enterprise, and agriculture sectors. Subsequently, all would serve as important catalysts in countryside development.

“This legislation will open a new source of equity infusion, particularly for the smallest lenders that cannot expand and who cannot afford sophisticated forms of financial services,” he said.

Rural banks have been operating in the Philippines for 60 years and with the amendment of the law, will boost its ability to help spur countryside development.

The bill is still pending second reading.

Article posted on Malaya Business Insight: Banking and Finance  Special Section

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