The rural banking sector is inclined to pursue the consolidation of small industry players in a bid to gain financial strength and attract foreign investors.
Rural banks are currently prohibited by law to have foreign shareholders, but the Rural Bankers Association of the Philippines (RBAP) is convincing Congress to pass a bill that will allow its members to accept foreign equity.
RBAP president Ian Pama, in a speech last week, said the group would focus on the consolidation of the industry and on pushing for the proposed law allowing foreign shareholders in rural banks.
There are more than 600 rural banks in the country. By average, the rural banking sector has capital adequacy ratio of 19 percent, which is more than the 10 percent minimum requirement by the Bangko Sentral ng Pilipinas.
The group, however, admits they have some weak members and that consolidation will help address their capitalization woes.
RBAP believes that foreign investors would bring the necessary resources to support the expansion of the services of rural banks.
“As we continue to merge, consolidate and gain momentum, I believe it will only be a matter of time that will be allowed to welcome foreign equity that will make our individual banks even more relevant to our customers. Under my term, we will work with Congress and industry regulators to achieve this for our organization,” Pama said in his speech during an induction ceremony for new RBAP officials.
The Bangko Sentral ng Pilipinas is supporting the call for the opening up of the rural banking sector to foreign investments.
BSP Governor Amando Tetangco Jr. said the additional capital from foreign investors would help rural banks invest in technology that would help improve and expand their financial services.
Tetangco said the expansion of rural banks was consistent with the aim of industry regulators to improve the accessibility of financial services, especially in remote areas of the country where commercial and universal banks do not operate.
In response to the industry’s request, Congressman Sergio Apostol filed a bill that will allow rural banks to have as much as 40 percent foreign equity.
House Bill No. 4805 seeks to amend the Rural Bank Act of 1992, the existing law that prohibits foreign ownership in rural banks.
“Foreign equity investments would without doubt fill this gap and be a major stimulus for microfinance, micro-enterprise and agriculture sectors, and will therefore be catalysts in countryside development,” the bill says.