Rural banks should take advantage of developments in the financial system and widen their scope for innovation to maintain their position as a vital channel to deliver financial services in the countryside.
This was the message of Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. during the 63rd Annual National Convention and General Membership Meeting of Rural Bankers Association of the Philippines (RBAP) held last week in Cebu City.
“You remain a key channel to deliver financial services to the countryside, especially the unserved and underserved markets,” Tetangco said.
Citing BSP data as of December 2015, he said that there are 524 rural banks with a network of 2,086 branches and other offices in the Philippines.
Rural banks are present in 59 percent of the country’s 1,634 cities and municipalities, which is more than double the reach of universal and commercial banks (23 percent) and thrift banks (28 percent).
The BSP Governor noted that while bigger banks are concentrating in highly urbanized and densely populated regions such as National Capital Region, Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon), and Central Luzon, rural banks are thriving in regions where there is less access to financial services.
For instance, he said the Cordillera, Cagayan Valley, Mimaropa (Mindoro, Marinduque, Romblon and Palawan) and Caraga are among the regions where there are more rural banks than other bank types.
“Noteworthy to mention is that rural banks are the frontrunners in the establishment of micro-banking offices (MBOs), which enable banks to establish a presence in areas where it is not economically feasible to establish a full-blown branch,” he added.
Tetangco said out of 540 operating MBOs, 78 percent are owned by rural banks. These MBOs are present in 338 municipalities, of which 66 municipalities are served by MBOs alone.
“Looking at previously unbanked municipalities which gained banking presence, most of them are now enjoying banking services because of MBOs,” he said.
“The numbers that I have presented just show that rural banks are truly more accessible in the countryside. You are still in areas where other players are not. Take advantage of this position to strengthen your foothold so that you will be more resilient when competitors come,” he added.
The BSP chief stressed that while rural banks already have a wide presence, there are also still untapped opportunities in terms of unbanked municipalities whose level of economic activity is not necessarily low.
For instance, he noted that 15 percent of unbanked areas are first- and second-class municipalities, noting that these areas would benefit from financial intermediation to sustain local economies and boost consumption and productivity.
Tetangco said rural banks could apply their unique strengths to improve their products and services in terms of design and delivery.
He added that the lenders could use their intimate knowledge of the local economy and close ties with the community to be more responsive to the needs of customers as well as to market trends.
“The point is, even in the face of technology, you can still build on your strength – which is the relationship that you have established with your community… Finally, to be better positioned to serve your clients, always keep in mind that only sound and well-managed institutions can take advantage of new opportunities and have scope for more innovations,” he said.
Tetangco said promoting financial inclusion should not be at the expense of safety and soundness of operations.
“This is the reason why the BSP always emphasizes the importance of strengthening your bank’s governance structure and institutional capacity, and continuously upholding best practices and performance standards,” he said.
He said the central bank remains committed to providing an enabling regulatory environment that will support rural banks in overcoming emerging challenges and provide the industry with opportunities to be more responsive to the markets that they serve.
“Our regulations allow you to partner with non-banks to offer new products and adopt new channels and technology,” he said.
For example, 39 rural banks have been given the authority to cross-sell microinsurance and 50 additional rural banks have already obtained a “no objection notice” from the BSP and are in the process of getting approval from the Insurance Commission.
Based on RBAP data, there are almost 2 million microinsurance clients.
There are 52 rural banks with electronic banking facilities and e-money services.
“I understand that there is still room for improvement in terms of maximizing the use of these platforms in your operations, but your openness is encouraging. Our hope is that our efforts toward the establishment of a National Retail Payment System (NRPS) will be able to address some of the limitations that have impeded the scaled uptake of e-money and electronic payments in general,” he said.
“As the push for financial inclusion continues to intensify, the role of rural banks today is even greater than it was then. Embrace this mission and role which you have been given more than 6 decades ago, and nurture it by evolving and adapting to the demands of the times,” he said.
“On our part, we will remain your partner in this important task. This partnership is integral as we work on our shared goal of a stronger, more competitive and more inclusive rural banking sector that can make a positive difference in the lives of the Filipino people,” he added.