Too big, or not too big

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Ben D. Kritz

Ben D. Kritz

It is probably no accident that Vittorio Almario is the president of the Rural Bankers Association of the Philippines (RBAP). He is the second-generation head of the Rural Bank of Mati, a largely family-owned rural bank founded in 1959 with a single office—to this day, the only office the bank has—in the capital of Davao Oriental. Almario’s bank is the archetype of the original idea behind the rural banking system when it was first conceived in 1952: A system that would provide one bank in every community in the Philippines by encouraging the “financially capable” leading families in the provinces to set them up.

There are, according to the RBAP, around 550 rural banks in the Philippines, half the number from the sector’s peak sometime in the mid-1980s, but with more than double the number of branches, around 2,500, than when “one bank, one office” was the norm. About 70 percent of RBAP’s members are still rather small operations with three or fewer branches, but there are a surprising number that have grown to rival their mainstream counterparts in scale, operating dozens of branches and managing tens of billions in deposits and capital. Likewise, there are rural banks that are well-managed and financially sound, and those that are not—something that has been made painfully clear by the aggressive efforts of the Bangko Sentral ng Pilipinas (BSP) over the past couple years, perhaps even to a fault in some cases, to close down failing banks.

In listening to RBAP officials describing their perspectives on their industry and social role, one very quickly gets a sense that there is a significant philosophical conflict, one that will not be at all easy to resolve, between the rural banks and the BSP. Which is not to suggest there is contention between the sector and the regulator—RBAP’s Almario, who was in town this week for the regularly scheduled periodic meeting between the BSP and RBAP, spoke with genuine appreciation for the cordially frank relationship the group has with BSP officials—but they do have very different responsibilities and objectives that are yet to find workable compromises.

Back in May, President Benigno Aquino 3rd signed Republic Act (RA) 10574 into law, which adjusts the ownership limitations—i.e., places a 60-percent ceiling on any family or individual shareholder in a rural bank, but now allows that proportion of foreign equity in a rural bank—to match the rules that apply to commercial and retail banks. While there are a number of significant potential benefits such as improved management and capitalization for rural banks, the law presents a couple problems, such as how to handle changing (or not changing) existing banks’ ownership structures to meet the new requirements, and how to get around restrictions on real estate ownership by foreign investors. On a more basic level, though, the RBAP worries that RA 10574 and other regulatory changes—such as procedures for disclosing interest rates and their calculations—might present serious obstacles to the rural banks’ ability to serve their core market, which, as RBAP’s Almario describes it, is not so much “rural” any longer as the vast population on the lower strata of the economic scale who are not really being reached by a strictly “free market” approach.


A case in point: even now, about 30 percent of the country’s municipalities do not have a bank of any kind, places where for whatever reason there were no “financially capable” investors available when the rural banking system was being formed, and which remain commercially unattractive to mainstream banks. The only idea put forth by the BSP so far to reach these markets is the recently announced initiative to amend the BSP charter to include Islamic banking (not surprisingly, a great many of the unbanked areas are in Muslim Mindanao), an idea which Almario and his RBAP colleagues view with a great deal of skepticism.

Thus on the one side we have the rural banking system, which sees itself as having a clear social responsibility and an important place in the country’s economic structure, and on the other, we have the regulatory framework and institutions, which are responsible for maintaining the entire system in a way that is not only financially sound, but provides a high level of consumer protection and choice. Regardless of the two sides’ cordiality and mutual respect, there are aspects of those two perspectives that are, at least for now, worryingly incompatible, and which take a great deal of discussion to resolve.

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And now for an update, and a welcome one at that, on a topic I covered a few weeks ago (A Lesson in Civic Engagement from Masbate, August 15). After posting the first of what was hoped to be a regular issue of a “monthly report” on the performance of their provincial government, the “Masbate Talks” Facebook group was completely stonewalled by Gov. Rizalina “Dayan” Seachon-Lanete’s administration in their next attempts to obtain financial information and summaries of the activities of the provincial board and governor’s office. One would think that Lanete, who is facing plunder charges before the Ombudsman in connection with the “pork barrel” scandal, would be a little more image-conscious than to allow bureaucratic obstinacy against a large group of people (the Masbate Talks group has more than 14,000 members) who are already looking at their political leaders with a great deal of suspicion, but some people apparently have to learn the hard way. Getting no satisfaction from their local officials, the Masbate Talks group launched a petition addressed primarily to Local Government Secretary Manuel “Mar” Roxas 2nd, requesting that the Department of the Interior and Local Government intercede to compel the Masbate government to provide the requested information, on the basis of the much-heralded “full disclosure policy” supposedly being implemented by the DILG.

In a rare example of not only a petition actually working for a change, but relatively speedy high-level government response, the group’s request was answered by a memo sent by Undersecretary for Local Government Austere Panadero to DILG Region V Director Blandino Maceda, directing him to take “appropriate action” on the matter. To be sure, everything has not been entirely satisfactorily worked out yet as of this writing, but having been given a taste of success in participatory democracy has only pushed the Masbate Talks group to even greater efforts.

Good for them. And even better for the country, if their success inspires others elsewhere to take the same active interest in the performance of their elected officials.

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1 Comment

  1. I didnt read all your article but i would ask a question. Why would people save money when you have inflation but you cannot even get 1% interest from any bank. Plus if you leave your money there & dont add to it & dont take any out of it they make a charge on you. They are not happy with just making a lot of money from using your money & not paying you a good return they then have to take a charge from it for not using it. Its obscene & does not happen in the uk. Its only in the philippines, rip people off in every way possible. Sell them cheap products with at most 1 week guarantee, its laughable, but thats the philippines, i feel sorry for pinoys as everyone everywhere is looking to rip you off. Look at any supermarket all the staff are below 27 as after that they are to old to work there. I get very angry with all this & i could go on & on.