Entry of foreign capital in rural banks backed

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) said the infusion of foreign capital into the rural banking industry would boost the competitiveness and financial muscle of rural banks.

BSP Governor Amando Tetangco Jr. said the central bank is supporting the proposed amendments to Republic Act 7353 otherwise known as the Rural Bank Act of 1992.

The law provides that the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock.

The Rural Bankers Association of the Philippines (RBAP) wants the law amended to allow foreign equity of up to 60 percent of rural banks.

“We support that for them to acquire additional capital and technology,” Tetangco stressed.

He pointed out that the entry of foreign investors into the industry would increase the financial capability of rural banks and at the same time improve the industry’s operational efficiency.

“This will result in a more stable rural banks that will operate more efficiently and take advantage of modern technology,” the BSP chief stressed.

Earlier, RBAP spokesman Tomas Gomez IV said that allowing foreign investors to invest in the industry would boost the country’s rural banks.

“Foreign equity will help rural banks expand their reach, invest in new technology and improve their lending capacity,” Gomez stressed.

Gomez, who is also president and chief executive officer of GM Bank of Luzon Inc. pointed out that quite a number of foreign entities had expressed interest in investing in Philippine rural banks.

According to him, foreign entities are very much interested in the country’s rural banking industry that has an average capital adequacy ratio (CAR) 19 percent, way above the 10 percent requirement of the BSP and the international standard of 8 percent.

Likewise, he cited the return on equity (ROE) of rural banks that has exceeded that of universal and commercial banks as well as thrift banks between 2000 and 2009.

Latest data from the BSP showed that the number of banks retreated by 27 to 758 last year from 785 in 2009 due to mergers as well as the closure of some banks.

The BSP reported that the number of rural banks declined to 647 last year from 674 in 2009 while the number of universal and commercial banks was unchanged at 38 a d thirft banks at 73.

Gomez explained that major players in the industry continue to consolidate their operations to strengthen their competitiveness through higher capitalization and assets.

“Consolidation is happening. You need a certain scale to be more effective,” Gomez stressed.