True Measure

They say that a person’s true character is tested by the way he performs in the face of adversity. When the pressure is at its highest, that is when one’s determination is truly measured.

The rural banking sector is facing a challenging time. In the midst of this, the sector still believes that the rough patch it is currently treading is just a temporary obstacle, a phase that any other business goes through. Be that as it may, this is high time for rural banks to show they are worthy of the trust of their clients—the under banked individuals who have otherwise no one to turn to.

Taking things into perspective, there are many reasons to remain optimistic. Foremost of which is the conducive regulatory environment that is expected to spur more activity within the sector. The measures undertaken by the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC) have brighten the future of local rural banks, even if current circumstances have made the present somewhat of a concern.

The Strengthening Program for Rural Banks (SPRB) Plus, a joint undertaking of the BSP and the PDIC, for instance, is seen to improve the delivery of financial services in the countryside as it encourage mergers and consolidations (M&As) among rural banks, fostering a stronger rural banking system. Under this program, strategic third party investor (STPI) rural banks intending to acquire eligible rural banks through M&As can avail of financial assistance from the PDIC and regulatory relief from the BSP.

Eligible STPIs now include strong and well-managed thrift banks and commercial banks. As such, they are entitled to regulatory incentives and/or financial assistance when investing in eligible banks, especially those serving the countryside and under banked customers. Non-bank corporations may also qualify as white knights. On top of the financial assistance granted through PDIC, additional incentives may be offered by the BSP to broaden participation under the Program and promote successful banking partnerships.

To further attract investors, the BSP likewise gives additional premium for STPIs acquiring three or more eligible banks. STPI commercial and thrift banks shall be granted one additional branching license in restricted areas, while STPI rural banks shall be granted one additional branching license in areas outside Metro Manila for every three eligible banks resolved under the Program.

The Program is expected to not only sustain and strengthen the financial condition of resulting banks, but also to improve their quality of corporate governance and management.

In addition, the effects of Republic Act 10574, or “An Act Allowing the Infusion of Foreign Equity in the Capital of Rural Banks, Amending RA 7353, Otherwise Known as the Rural Bank Act of 1992 as amended and For Other Purposes,” will be soon felt as foreign investors are expected to troop in and infuse much-needed capital to some rural banks.

R.A. 10575 allows non-Filipino investors 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.

Not only will the new law provide banks with the proverbial rope to hang on to, but also it will further boost countryside development in the country through investment in rural banks. It will serve as a key instrument for the government to achieve its goal of full financial inclusion.

Things may seem daunting at this point, but the current available opportunities and future of the sector has never been brighter. Rural banks are essential to countryside development and they will remain so for many years to come.