Two developments in the banking sector in the past two weeks passed hardly noticed despite their expected profound impact on bank management and public access to financial services.
The first had to do with the Bangko Sentral ng Pilipinas’ directive for bank board directors to undergo mandatory training in “good corporate governance.” The BSP reminded banks of their responsibility to continually strengthen their governance systems by, among others, having their board directors take the basic course on prudent practices in dealing with stakeholders. “Good corporate governance is the underpinning of safe and sound banking operations. Hence, it is important that the tone of good governance emanates from the top,” the BSP said in a note attached to Memorandum Order 26-2012. “The board of directors should embody and nurture the principles of governance in carrying out their duties and responsibilities.”
This latest policy underscores the BSP’s desire to have a stable financial system as an anchor for the growing Philippine economy. It had earlier instituted “fit and proper” initiatives that allowed regulators to screen all appointments to a bank’s board as well as senior officer positions. The BSP may accept or reject appointments based on a stringent checklist that includes integrity, experience, education, training and competence, and performance records.
The second development—the BSP’s lifting of a decades-old restriction on the setting up of new bank branches—deserved more attention. Henceforth, a bank may put up as many branches in as many locations as it wished, as long as its capital can support the expansion. This liberalization move, embodied in BSP Circular 759, is in line with the central bank’s intention to make loans and other financial services meet the Philippine economy’s increasing demands. The BSP believes that the move will help improve access to loans and other financial services for consumers and microenterprises even in remote areas. (One BSP survey shows that four out of five Filipinos have no bank accounts, reflecting the inaccessibility of bank products and services, especially in areas outside Metro Manila.)
There’s a perception that we have too many banks. This may be true in Metro Manila, where there is a concentration of the country’s biggest banks. But it’s very different outside the National Capital Region, where access to bank credit is truly difficult.
Latest data from the BSP show that as of end-June 2011, the banking system consisted of 20 universal banks with 4,111 branches, 18 commercial banks with 615 branches, 72 thrift banks with 1,309 branches, 589 rural banks with 2,015 branches, and 40 cooperative banks with 126 branches. Of these, Metro Manila accounted for 32.2 percent or 2,860 banking offices. A far second was Calabarzon (Region IV-A) with 14.9 percent or 1,326 banks, and Central Luzon (Region III) with 10.4 percent or 921 offices. Combined, the three leading regions accounted for 57.5 percent or 5,107 banking offices of the nationwide banking network. The three regions with the lowest concentration of banking offices were the Autonomous Region in Muslim Mindanao with only 0.2 percent or 19 banking offices, the Cordillera Administrative Region with 1.6 percent or 142 banks, and Eastern Visayas (Region VIII) with 1.9 percent or 168 banking offices.
Here’s a clearer picture of how the provinces are truly “underbanked.” The Philippines’ bank density ratio as of end-June 2011 was 5.4 banks per city or municipality (hardly changed from 5 in 2001). The customer ratio was 10,637 persons per bank. In contrast, Metro Manila had 168.2 banks per city or municipality, with each office serving 4,183 persons. At the other extreme was the ARMM, with a bank density ratio of less than one banking office per city or municipality and the highest customer ratio of 193,748 persons per bank. ARMM, Eastern Visayas and CAR had the lowest bank density ratio and were therefore the most “underbanked” areas.
It is no wonder then that many farmers and fisher folk have remained on the margins. With no bank to go to, these agricultural workers are forced to borrow from unscrupulous middlemen and loan sharks.
What is needed is for the BSP to devise ways to truly prod banks to go to “underbanked” areas. As it is, money or capital will simply go where it will grow. From the looks of it, Metro Manila will remain a favorite spot for banks planning to set up new branches.