BSP: Small banks may now sell financial products

Rural customers may take out loans, insurance policies

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Rural and thrift banks are now allowed to sell financial products such as insurance plans and credit cards of their sister firms, according to the central bank.

The cross-selling of products was formerly restricted to universal banks, under the Bangko Sentral ng Pilipinas’ (BSP) previous guidelines. By allowing the small banks to deal in financial products, the BSP hopes to curb the activities of loan sharks and improve access to formal financial services in the Philippines, where over a third of the population is still considered “unbanked.”

“This reform initiative makes available to consumers a broader array of financial products using the existing branch network of the banking system,” BSP Amando M. Tetangco Jr. earlier said. The changes in cross-selling rules were initially announced last month.

Cross-selling is an international practice that separates the production of a financial product or service from its distribution. Under the guidelines approved by the BSP’s Monetary Board, bank premises are used as access points for financial products offered by related parties.

Under the new set of rules, all types of banks may now cross-sell credit cards and auto, home mortgage, personal and other retail loans; term, life, non-life and other protection-type insurance products; cash, debit and related products; and other similar financial instruments that may be authorized by the BSP.

While all types of banks are now covered by the new rules, the BSP said a lender would still need to maintain a CAMELS rating of at least “3” before it can engage in cross-selling.

A bank’s financial health may be measured in terms of CAMELS, which stands for capital adequacy, assets, management capability, earnings, liquidity, and sensitivity to market risks.

The new rules restrict the kinds of products that can be cross-sold. Small banks may only deal in products that carry little to no investment risk to protect consumers from volatile financial markets.

The BSP also said bank employees should be clearly distinguished from those of a bank’s sister company who deal in financial products.

These segregation rules were added “to avoid any impression that products cross-sold within bank premises are guaranteed by the bank,” the BSP said.

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