The regulator has said it. Credit rating agencies have said it. Now, the continuing test is for rural banks to show the public that the rural banking industry indeed remains stable and robust.
In a virtual vote of confidence, the Bangko Sentral ng Pilipinas (BSP) said that the recent closures among some rural banks do not paint the total picture for the industry, but are rather just isolated cases. Some of the problems could be attributed to what the BSP refer to as insider abuse by some unscrupulous owners. Then again, the best way to weed the industry of weak and nefarious leadership is to allow foreign investors to come in and infuse fresh capital into rural banks.
The Rural Bankers Association of the Philippines has repeatedly voiced its support for the proposal to allow foreign equity investments in rural banks, to bring in fresh capital and improve banking know-how into the industry.
Currently, Republic Act No. 7353 or the Rural Banks Act of 1992 prohibits foreign ownership in rural banks. Under Section 4 of the said law, direct or indirect ownership of capital stock holdings in rural banks are limited to Filipinos.
But under House Bill No. 5360, foreigners may buy and own up to 40 percent of a rural bank’s authorized capital stock. Foreigners may become members of the Board of Directors of a rural bank to the extent of their participation in the bank’s equity.
The entry of foreign investment in the rural banking industry shall the pave way for a sustained, competitive and robust banking system. Rural banks help rationalize the development of rural communities by financing projects that support agricultural progress. The industry plays a very important role in driving and sustaining economic growth in the countryside, by meeting the needs of farmers, fisher folks and micro-entrepreneurs.
Just like Lakas-Kampi-CMD Rep. Pedro Romualdo of Camiguin, author of the bill, said, the amendment in the rural banking policy is a positive step toward a better banking environment, allowing the rural banks to expand their services, modernize their facilities and hire highly competent personnel to handle their operations and services.
Senate Bill No. 3089 authored by Sen. Edgardo Angara, on the other hand, is looking for as much as 60-percent equity in rural banks to be allowed to foreign investors. It has not gained much traction compared to the House version, which was already passed on the third and final reading. Some rural banks are also wary that 60 percent may be too high. Hopefully, our senators carefully deliberate on this matter.
Earlier, Moody’s Investors Service lauded the Strengthening Program for Rural Banks (SPRB Plus) of the BSP and the Philippine Deposit Insurance Corp., which supports mergers and acquisitions in the rural banking industry, referring to the program as credit positive. Coupled with the strides we have taken on the legislative side, the industry could soon find itself in the midst of an exciting change.
For the meantime, rural banks must remain steadfast in ensuring the stability of the industry. While in the middle of this waiting game, the mindset should be business as usual. The industry owes it to its clients. Customers could not care less who owns the bank; it could not care less who trumpets support for the industry as a whole. All they care for—all they need—is for the service to be superb, that their banking needs are met, and that their money are safe.
Those are the expectations we should not dare fail to meet as we celebrate 60 years of rural banking in the Philippines.
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