RBAP @70: Playing Pivotal Role In Digitalization, Financial Inclusion

To celebrate its platinum anniversary and the Rural Banking Consciousness Week, RBAP adopted the theme “Turning a new leaf @70 through Digitalization and Inclusive Financial Sustainability” for this year.

Rural banks continue to play a pivotal role in promoting inclusive development especially in the countryside as the Bangko Sentral ng Pilipinas (BSP) ramps up the government’s digitalization journey.

RBAP president Mary Ann E.M. Tupasi-Saddul said the industry is adopting digitalization and sustainable, inclusive business practices to remain relevant in an evolving competitive and regulatory landscape.

To celebrate its platinum anniversary and the Rural Banking Consciousness Week, RBAP adopted the theme “Turning a new leaf @70 through Digitalization and Inclusive Financial Sustainability” for this year.

While not as prominent in the digitalization landscape, Tupasi-Saddul said rural banks actually play an indispensable role in the financial electronic ecosystem.

“There is, as yet, no completely cashless value transfer system, and it is the rural bank branch network that provides actual cash in, cash out access points for digital solutions offered by more sophisticated players,” she explained.

Under the Digital Payments Transformation Roadmap, the BSP has committed to shift 50 percent of total retail transactions to electronic channels and increase the number of banked Filipino adults to 70 percent by the end of 2023.

With the COVID-19 pandemic serving as catalyst over the past two years, the share of digital payments to total retail transactions increased to 30.3 percent in 2021 from 20.1 percent in 2020.

Likewise, the number of Filipino adults with formal accounts almost doubled to 56 percent in 2021 from 29 percent in 2019 based on the latest Financial Inclusion Survey (FIS).

According to RBAP, the industry serves as agents of financial inclusion, having been mandated by law to be catalysts for rural and countryside development.

“Rural banks operate a physical network of branches and access points (through tie-ups with non bank actors) in local economies deemed too small to be viable by the bigger banks,” Tupasi-Saddul added.

Data showed some 800 rural bank branches or approximately 20 percent of the total are located in the lower or third to sixth class municipalities nationwide.

“Rural banks, especially microfinance-oriented rural banks, have been leaders in the adoption of digital technology (front and back-end), both home-grown and adopted from other jurisdictions, pioneering digital and paperless solutions way before the bigger players,” she said.

The organization pointed out that 96 percent of microfinance institutions (MFIs), including microfinance oriented rural banks, have formally committed to digitalization as a primary strategic initiative, while 72 percent are targeting to launch their own mobile apps or online platforms within the next two years .

Raising the bar

Just like other organizations, RBAP is raising the bar for governance in the industry as well as the protection of the banking public.

As such, Tupasi-Saddul said RBAP has partnered with the Rural Bankers Research and Development Foundation, Inc. (RBRDFI) to provide training and capacity building services for directors, officers and employees of financial institutions.

“Many of these training opportunities are targeted to improving the corporate governance and risk management cultures of financial institutions. This consortium’s most recent offering targets bank compliance officers and internal auditors, the two primary bank self-assessment/control processes, and aims to equip the aforementioned officers with adequate skills for addressing regulatory or supervisory findings,” she added.

For next year, the partnership intents to create a pool of independent directors to further reinforce transparency within the rural banking industry.

Tupasi-Saddul said consumer protection has always been a core of rural banking since community banking is based on intimate knowledge of clientele and long-standing relationships.

“We are also, the literal face of the banking industry across the countryside, as it is through rural bank offices that many bank clients onboard onto the financial system, even when relying on purely digital solutions. Thus, we take our consumer protection responsibilities very seriously,” she said.

The RBAP president pointed out that the organization is collaborating closely with the BSP to harmonize consumer and business interests in the implementation of Republic Act 11765 or the Financial Consumer Protection Act.

Strengthening the industry

To further strengthen the industry, RBAP supports the Rural Bank Strengthening Program (RBSP) being undertaken by the BSP in cooperation with other government financial regulators and government financial institutions by encouraging mergers, consolidations, counterpart capital, technical assistance, and financial assistance among rural and cooperative banks.

In a draft proposal, the BSP aims to raise the minimum capitalization of rural banks to at least P50 million for those with just head offices and less than five branches, P120 million for those with six to ten branches, and 200 million for those with more than ten branches. Under current regulations, rural and cooperative banks are required to put up a minimum capitalization of P10 million to P200 million depending on the location and number of branches.

As providers of financial services to marginalized sectors, Tupasi-Saddul said RBAP understands the need to reinforce rural banks’ capacity in terms of higher capital in order to play a bigger role in the economic recovery of the post-pandemic era.

“Thus, we are one with BSP on creating a more capable rural banking industry through higher minimum capital requirements. We are closely coordinating with the BSP for tweaks to the minimum capital requirements that will result in stronger financial institutions with a minimum of disruption or dislocation to the smaller industry players,” she said.

According to Tupasi-Saddul, RBAP is exploring multiple approaches to assist few members who will have some issues in complying with the new minimum capital requirements.

“The rural banking industry has weathered 70 years of change, we view the new minimum capital requirements not as a hurdle but as a challenge to further strengthen and professionalize our membership,” Tupasi-Saddul said.

RBAP’s membership has 3,330 branches and branch-lite units all across the country, including in the lower-income municipalities unserved by big banks.

There are 405 rural and cooperative banks operating 3,025 branches all over the country as of end July. The assets of these small banks amounted to P359 billion as of end March this year.