BSP sees rural banks stable despite foreign capital entry

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The central bank remains optimistic about the stability and growth of the country’s rural banking sector despite the difficulties that may arise from stiffer competition spurred by increasing foreign equity in rural banks.

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Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the central bank sees new opportunities, as well as challenges, emerging from the ongoing changes to the environment in which rural banks operate.

During his speech at the induction of the new officers of Rural Banking Association of the Philippines (RBAP) on Tuesday, the BSP governor said rural banks face increasingly stiffer competition coming from both smaller and bigger players, as well as cooperatives and non-government organizations operating in the countryside.

Furthermore, Tetangco said that the passage of legislation allowing the infusion of foreign equity in rural banks is also bound to be a game changer for the industry.

The BSP governor was referring to Republic Act (RA) 10574 or the Foreign Equity
Law, which allows the entry of foreign equity into the country’s rural banking system. A non-Filipino can now own up to 60 percent of the voting stock of a domestic rural bank.

“As such, these entities may acquire portions of your markets, not only from frontier areas but possibly even those that you have nurtured full time. We also see the increasing presence of larger financial institutions in various municipalities, while larger banks may have their own reasons for expanding their branching footprint. Rural banks now face more competition,” he said.

Nevertheless, Tetangco reassured rural banks that size is not the only determinant in facing competition, but that a rural bank’s expertise in a particular area will be its advantage.

“You may not be the biggest in your areas but you certainly know the countryside better than anyone. With this, your expertise and knowledge will translate into a premium of efficiency—a definite advantage over your competitors,” he said.

Jose Misael Moraleda, the newly elected president of RBAP, said in his speech before his co-members said that stiffer competition is inevitable, especially for a country like the Philippines that has caught the eye of foreign investors for its growing economic prowess.

“My fellow rural bankers, let us strive to make our story not that about sheer survival, but about stability and secured existence,” he said.

Moraleda said the realization of this goal rests on two pillars, the industry’s ability to strengthen its core business, and its willingness to absorb and adjust to external developments.

“Indeed, all of these will be costly. But the short pain now will eventually pay off, when you see your bank standing in the light of triumph and resilience,” Moraleda said.

Mayvelin U. Caraballo

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