Beefing up the foundation of the banking industry


With the rapid advancements in financial systems in both the domestic and global arena, it has become imperative for financial regulators to be attuned with the times. These developments have created new channels wherein financial crises may traverse; crossing national borders as well as economic sectors.

The whole rural banking industry is one with the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corporation (PDIC) in hoping that the proposed amendments to their respective charters receive adequate attention from legislators during the 16th Congress.

The BSP has been pushing for the amendment of its charter so it can prompt the national government to recapitalize automatically every time its capital reaches dangerously low levels. Through recapitalization, banking regulators—like the BSP—will be able to ensure the stability of the sector, especially of rural banks, so that they are able to raise capital themselves. In so doing, rural banks are placed in a better position to withstand any losses and liquidity risks.

Over the years, the BSP has also played a crucial role in ensuring the stability of the rural banking industry. Under its leadership and partnership with the Rural Bankers Association of the Philippines (RBAP) and the PDIC, the public has been assured of the financial integrity and strengthened financial inclusion particularly in rural banks.

In fact, the BSP is one of the first central banks in the world to have an office dedicated to the pursuit of financial inclusion.

The rural banking industry has been an active advocate of financial inclusion in the country. It is through them that the “unbanked and underbanked” have gained access to financial services. Despite geographical hindrances, rural banks have persevered in reaching out to the poor market, through the full utilization of mobile banking, microfinance and micro insurance services.

For instance, the BSP authorized rural banks to make equity investments in ATM networks through Circular 563 and
engage in limited trust activities under Circular 583 in 2007.

The following year, qualified rural banks were even allowed to participate in select derivatives activities under Circular 594.

In 2009, the Bangko Sentral issued Circular 649 or the electronic money circular which provides the regulatory framework for the fast-growing electronic money business, where rural banks play a central role. This enabled rural banks to leverage their existing offices and deliver their financial services to an even broader market, with potentially greater efficiency and lower costs.

The Bangko Sentral has also issued regulations that significantly broaden business opportunities for rural and cooperative banks. Under Circulars 678 and 680, covering Housing Microfinance and the Micro-Agri Loan Product, banks are able to manage their microfinance operations better, with a more diversified portfolio and lower risk of business loans applied to agriculture or housing.

Besides the BSP reforms, the RBAP is also in full support behind PDIC to further enhance and strengthen deposit insurance in the banking industry. As insurer of deposits, the Association believes that PDIC is tasked to support BSP’s regulatory role over banks and financial institutions and coordinate closely with the BSP in carrying out its task as deposit insurer.

With these developments in place, it is envisioned that the rural banking industry can guarantee its effectiveness and credibility through the strengthened institutional framework of both the BSP and the PDIC.

An effective industry needs an effective regulator. Anything that will enhance the capability of the BSP and the PDIC will enhance the state of the industry as well.


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