Invest deposits in their area of origin

The Bangko Sentral ng Pilipinas (BSP) recently announced the approval of a resolution authorizing the opening of more bank branches nationwide, citing the need for more access to financial services in the countryside.

Offhand, this is welcome news. But, let us view this pronouncement from the point of view of its effect on the economic development of the country in general.

While banks have facilitated the flow of commercial transactions in urban and rural areas, what is needed are funds to spur the development of business enterprises in the countryside, thereby dispersing the overconcentration of industries in centers of population.

Official records show that bank branches operating in the provinces remit a substantial portion of their deposit funds to their head offices in Metro Manila on a regular basis. It is claimed that the dearth of profitable business ventures locally justifies the practice. It will be noted that the BSP has issued a circular mandating that branches of banks operating in the provinces should channel a portion of their loanable funds domestically, particularly to the agricultural sector.

I believe that deposits accumulated by banks representing the hard-earned money of the general public in their area of operations should be used to fund the development of business enterprises located in those places and should not be invested elsewhere. The BSP should put more teeth into its regulation to enforce a policy of assisting the credit needs of rural-based entrepreneurs.

If countryside financiers, particularly the Indian money lenders, have found success in this area, there is no reason for banks—backed up by modern office equipment and highly trained personnel—to be left behind in the operations of these unlicensed lenders.

Let us expand our analysis on the role of banks in the development of our rural landscape. While it is true that development loans are a function of development and savings banks (e.g.,  the Land Bank of the Philippines and the Development Bank of the Philippines), short-term loans are within the ambit of operations of commercial banks. It can be argued that the extension of credit is a management prerogative inherent in the banking system. True, but we should expand the role of banks in the overall picture of the economy. Banks must have a social conscience instead of pursuing a purely profitable motive. Extending loans to small borrowers with enough safeguards will go a long way in uplifting the life of the underprivileged members of our society.

Recent studies reveal that small borrowers have a higher rate of repayment than the big borrowers. The former are more conscious of preserving their credit standing with the banks than the latter. A mixed composition of loans consisting of big and small borrowers will go a long way in improving the quality of a bank’s loan portfolio.

—GABRIEL U. VILLALUZ, Quezon City