MICROCAPITAL.ORG STORY: Observations In The Philippine Star and The Manila Times On Rural Microfinance Institutions In The Philippines – The Philippines Central Bank Bangko Sentral ng Pilipinas Moves To Allow Rural Banks to Sell Microinsurance And Consolidation May Benefit A Minority Of Rural Microfinance Institutions That Are Undercapitalized

It was recently reported on the online news portal of The Philippine Star [1] that the Philippine central bank, Bangko Sentral ng Pilipinas (BSP) [2], is taking steps to allow rural banks and other community-based banks to sell simple microinsurance products. BSP officer-in-charge Mr Nestor Espenilla Jr informed members of the Rural Bankers Association of the Philippines [3] that a formula allowing rural banks to sell simple insurance products to cover mortgage redemption, the protection of farm equipment and services vehicles as well as health insurance would soon be presented to the Monetary Board [4] in the Philippines for approval.
At the moment, foreign and commercial banks can sell insurance products of their affiliates as long as they hold a minimum 5 percent stake in the insurance affiliate. Unlike such banks, rural financial institutions often lack the resources to invest in insurance companies.

Still on the issue of rural banks, a recent article in the Manila Times entitled ‘Most rural banks very healthy, many exceed required CAR’ [5] pointed out that 103 of the 690 rural banks in the Philippines (or 17 percent of all rural banks in the country) are ‘undercapitalized’. According to Mr Jose Nograles, president of the Philippine Deposit Insurance Corp. (PDIC) president, these undercapitalized banks hold Peso 11 billion in deposits (USD 236 million), or 10.3 percent of the rural banking sector’s total deposits. Many of these non-compliant banks are nonetheless ‘solid institutions’, according to Mr Nograles, and have combined assets amounting to 8.8 percent of the total assets of the rural banking industry as of June 2009. Industry-wide, the average capital adequacy ratio (CAR) in the rural bank sector was 18.3 percent which is almost double the required 10 percent. Mr Nograles made these observations during the Rural Bankers Association of the Philippines (RBAP) 52nd charter anniversary. He added that these figures ‘point to the need for mergers and acquisitions in the rural banking sector’.

The article in the Manila Times stated that consequences of the failure of any of 103 undercapitalized rural banks on their respective communities ‘ would be more pronounced than the failure of a commercial bank’ as rural banks have a greater impact on the communities they serve compared to commercial banks that are mainly urban-based. The article added that the financial health of the other 587 rural banks is in good state and that ‘most of these 587 other rural banks are very well-capitalized and profitable’.

Related Microcapital.Org publications on the role of rural MFIs and the microfinance sector in the Philippines can be found in the Bibliography section below [6] – [10].

By Chinq Yee Chong, Research Assistant

Bibliography

[1] Article in the Philippines Star entitled ”BSP may allow rural banks to seel insurance’: http://www.philstar.com/Article.aspx?articleId=512988&publicationSubCategoryId=66

[2] Central Bank of the Philippines: www.bsp.gov.ph/

[3] Rural Bankers Association of the Philippines: www.rbap.org/

[4] The Monetary Board of the Philippines: www.bsp.gov.ph/about/charter_02.asp

[5] Article in the Manila Star entitled: ‘Most rural banks very healthy, many exceed required CAR’: http://www.manilatimes.net/index.php/component/content/article/86-special-reports/3738-most-rural-banks-very-healthy-many-exceed-required-car

[6] MICROCAPITAL.ORG STORY: Philippines-Based MFI CARD Raises $10.4 Million In A 5-Year Privately Placed Bond Issue Supported By Grameen Growth Guarantee Program And ‘A(-)’ Rating By Planet Rating To Expand Its Microfinance Business

[7] NEWS WIRE: The Philippines: Rural Bankers Association of the Philippines, Microfinance Council of the Philippines and ACCION International Agree to Promote Client Protections

[8] MICROCAPITAL STORY: Philippines Government and Microfinance Institutions (MFIs) Initiate Loans Totaling $3.3b Since July 2004

[9] MICROCAPITAL STORY: Rizal Commercial Banking Corporation (RCBC) of the Philippines to Expand Microfinance Operations

[10] MICROCAPITAL STORY: Microfinance firms in the Philippines take to ratings

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