Rural banking leaner but healthier than ever

This letter is to correct the misconceptions that the Aug. 13 editorial “Rural banking woes” may have created among Inquirer readers.

The rural banking industry today may be leaner but healthier. The reach of its 2,500 branches across the country is wider and they provide financial services to a broader area.

Increasing competition from bigger banks, and even from other lending institutions that have encroached on the market of the rural banking industry, has affected the profitability of some rural banks. Also, because they are the most numerous among all bank types, rural banks will have the highest number of closures.

On the Strengthening Program for Rural Banks and SPRB Plus Program of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp., the industry supports it. The industry recognizes the fact that mergers and consolidations will be crucial to the industry. There already have been mergers and buy-outs of rural banks by savings and commercial banks. More prospective buyers are now doing due diligence on many rural banks.

The increase in the non-performing loan (NPL) ratio of the industry from 2010 to 2012 was the result of typhoons and calamities: El Niño and 29 typhoons in 2010-2011, and Typhoon “Pablo” in 2012, which destroyed P34.4 billion worth of private infrastructure and agricultural property.

The 42-percent growth in total loan portfolio (TLP)—from P4.5 billion in 2011 to P110.70 billion in 2012—also contributed to the NPL increase. This means that with more money being lent, there would be a slight projected increase in the NPL.

There is also a social aspect distinct to rural banks when it comes to NPLs because we deal with people who live in our communities—our very own kababayan. Foreclosures on loan collaterals are generally avoided in favor of loan restructuring to aid the farmer or the small businessman. Aggressively foreclosing a property, though this will reduce the NPL, will force people to turn to loan sharks, resulting in more poverty for the community.

We recognize the challenges facing the industry and continue operating in line with the best banking practices and in conformity with the highest international Basel regulatory standards as imposed by the BSP, and improving our services as mandated by law. These include the services to the Agri-Agra sectors; the maintenance of the successful mobile phone banking platform; the introduction of microfinance and microinsurance products; and the continued evolution of the industry through technology and training.

Rest assured, based on the TLP, capitalization and other performance indicators, the rural banking industry is in a far better position today than it has ever been in the past.

—VITTORIO Z. ALMARIO, president, Rural Bankers Association of the Philippines