MICROCAPITAL BRIEF: Senate Passes Bill Expanding Types of Foreign Entities that Can Invest Capital in Rural Banks in the Philippines

The Filipino Senate recently approved the third and final reading of a bill to amend the Rural Banks Act, a law governing the creation, organization and operation of rural lenders, to expand the range of foreign entities that can own shares in Filipino institutions licensed as rural banks. Previously, only foreign banks could acquire equity in rural banks and their shareholding was limited to 60 percent. Now any foreign individual or entity will be allowed to acquire equity in rural banks subject to the same 60-percent limit. “Rural banks need to look beyond their limited resources and take advantage of funds available elsewhere. The opportunity to forge international equity partnerships would put rural banks on a level playing field with its thrift and commercial banking counterparts that are able to take in foreign partners,” Senator Sergio Osmeña III reportedly said.

As of March 2012, rural banks reportedly had cumulated total assets of PHP 170 billion (USD 3.9 billion) and outstanding loans of PHP 100 billion (USD 2.3 billion). The majority of rural bank loans are issued to the agricultural, fisheries, hunting and forestry sectors.

By Nicole Boyd, Research Associate

Sources and Additional Resources:

Bangko Sentral Ng Pilipinas. Republic Act No. 7721, http://www.bsp.gov.ph/downloads/laws/RA7721.pdf

Bangko Sentral Ng Pilipinas. Rural Banks and Cooperative Banking System Statistics. http://www.bsp.gov.ph/banking/bspsup_rural.asp

Business Mirror. “Senate OKs bill allowing infusion of foreign capital in rural lenders,” http://www.businessmirror.com.ph/index.php/business/banking-finance/8477-senate-oks-bill-allowing-infusion-of-foreign-capital-in-rural-lenders

Business World. “Rural banking opened to foreigners,” http://www.bworldonline.com/content.php?section=TopStory&title=Rural-banking-opened-to-foreigners&id=65142

MicroCapital. May 7, 2012, “MICROCAPITAL BRIEF: Bangko Sentral ng Pilipinas (BSP) May Broaden “Special” Program for Distressed Rural Banks as 3rd Straight Quarterly Rise Brings Bad Loan Ratio to 10%,” https://www.microcapital.org/microcapital-brief-bangko-sentral-ng-pilipinas-bsp-may-broaden-special-program-for-distressed-rural-banks-as-3rd-straight-quarterly-rise-brings-bad-loan-ration-to-10/

MicroCapital. October 18, 2011, “MICROCAPITAL BRIEF: In Philippines, Rural Bankers Research and Development Foundation, Government Agencies Support Banks’ Expansion Into Microinsurance,” https://www.microcapital.org/microcapital-brief-in-philippines-rural-bankers-research-and-development-foundation-government-agencies-support-banks’-expansion-into-microinsurance/

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