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    Rbap 59th annual convention 25 may2012   latest edits Rbap 59th annual convention 25 may2012 latest edits Document Transcript

    • Rural
Banks:

Aiming
High,
Charting
a
Clear
Path• 
 
 Mr.
Ian
Pama,
President
of
the
Rural
Bankers
Association
of
the
 Philippines
 (RBAP),
 Members
 of
 the
 Board
 and
 Officers
 of
RBAP,
 my
 friends
 in
 the
 rural
 banking
 industry,
 ladies
 and
gentlemen,
good
morning.

 
 It
 is
 my
 pleasure
 to
 join
 you
 in
 your
 59th
 Annual
 National
Convention
 and
 Corporate
 Meeting.
 It
 is
 an
 added
 pleasure
 that
this
meeting
is
taking
place
at
what
has
been
named
as
one
of
the
best
beaches
in
the
world.

 
 I
 do
 not
 want
 to
 compete
 with
 the
 compelling
 call
 of
 the
powder
white
sands
and
clear
blue
water
so
I
will
only
talk
about
two
 issues
 that
 are
 important
 to
 the
 ever
 dynamic
 and
 evolving
rural
banking
industry.
First
is
the
strategic
and
vital
role
of
rural
banks
 in
 financial
 inclusion.
 And
 second
 is
 the
 constant
 need
 for
quality
management
and
governance
that
will
enable
rural
banks
to
effectively
fulfill
this
important
role.

 
 The
 rural
 banking
 was
 primarily
 conceived
 to
 serve
 the
needs
of
the
countryside.

As
an
industry,
it
accounts
for
around
30%,
 of
 the
 overall
 physical
 footprint
 of
 the
 banking
 industry.


More
 tellingly,
 your
 over
 2,500
 offices
 are
 mostly
 found
 in
 the
countryside
 where
 the
 big
 banks
 are
 not
 found.
 
 Rural
 banks,
therefore,
are
the
most
logical,
effective,
and
essential
partners
in
our
 new
 and
 worthy
 goal
 of
 achieving
 financial
 inclusion,
 of
bringing
access
to
financial
services
to
our
country’s
unbanked.

 
 The
Consumer
Finance
Survey
conducted
by
the
BSP
in
2009
which
was
recently
published
showed
that
8
out
of
10
Filipinos
do























































 
• 
Delivered
by
BSP
Deputy
Governor
Nestor
A.
Espenilla,
Jr.
during
the
Rural
Bankers
Association
of
the
 thPhilippines
59 
Annual
National
Convention
on
25
May
2012
at
Boracay
Island,
Aklan.


 1

    • not
 have
 a
 savings
 account.
 In
 addition,
 less
 than
 21%
 of
households
 said
 they
 take
 out
 loans
 from
 formal
 sources.
 
 Data
will
 also
 show
 that
 40%
 of
 our
 country’s
 deposit
 accounts
 (and
60%
of
the
value)
are
in
the
NCR
alone.
Geographically,
we
know
that
37%
of
the
country’s
municipalities
have
no
banking
office
at
all.
 Obviously,
 we
 still
 have
 a
 long
 way
 to
 go
 in
 spite
 of
 all
 the
progress.

 
 The
 challenge
 and
 the
 task
 are
 gargantuan
 but
 one
 that
 is
replete
 with
 many
 opportunities.
 
 Clearly,
 there
 is
 
 enormous
potential
 in
 this
 evidently
 untapped
 market.
 
 Many
 are
 already
seeing
 the
 potential
 in
 this
 space
 –
 international
 investors,
technology
companies
and
yes,
even
the
big
banks.

 
 Some
 rural
 banks
 have
 expressed
 their
 apprehension
 that
the
 bigger
 players
 are
 entering
 their
 space,
 one
 in
 which
 they
have
long
been
comfortable
in.

The
good
news
is
‐
you
were
here
first.
 You
 have
 first
 mover
 advantage.
 
 You
 know
 your
 markets
intimately
 and
 your
 markets
 know
 you.
 Capitalize
 on
 this
advantage
 while
 also
 finding
 ways
 to
 further
 improve
 your
services.
 With
 increasing
 competition,
 that
 advantage
 is
 at
 risk.

To
stay
in
the
game,
seize
new
opportunities,
create
partnerships
and
useful
linkages
and
innovate
in
the
products
and
services
you
provide
 and
 how
 you
 deliver
 them.
 
 This
 includes
 strategic
partnerships
 with
 government
 agencies
 like
 the
 Department
 of
Agriculture
 to
 create
 viable
 agricultural
 financial
 ecosystems
where
you
are
the
leaders.
 
 Trust
 that
 the
 Bangko
 Sentral
 stands
 ready
 to
 provide
 you
the
 necessary
 space
 to
 expand
 the
 scale
 and
 scope
 of
 your

business
activities.

We
have

shown
you
and
we
will
continue
to
show
 you
 in
 concrete
 ways
 our
 trust
 and
 confidence
 in
 the
 full
potential
of
our
rural
banks.
 

 2

    • In
 terms
 of
 products,
 we
 have
 crafted
 enabling
 regulations
that
allow
you
to
provide
a
suite
of
useful
and
responsive
services
to
 your
 clients.
 
 From
 microfinance
 loans
 for
 the
 working
 capital
of
microenterprises,

to
housing
microfinance
(Circular
678),
micro
agri
 loans
 (Circular
 680,
 amended
 by
 Circular
 748)
 and
 most
recently
microfinance
plus
for
growing
microenterprises
(Circular
744).
 Apart
 from
 credit,
 we
 now
 have
 the
 basic
 framework
 to
offer
 micro‐deposits
 (Circular
 694)
 that
 are
 geared
 toward
 small
savers.
Finally,
you
have
been
given
the
opportunity
to
distribute
microinsurance
(Circular
683).

All
these
products
will
allow
you
to
become
 relevant
 and
 responsive
 banks
 by
 being
 able
 to
 provide
the
 broad
 range
 of
 financial
 products
 and
 services
 that
 your
clients
are
actually
looking
for.

 
 We
 have
 also
 gained
 much
 ground
 in
 providing
 the
necessary
environment
for
your
banks
to
expand
your
distribution
networks
 and
 delivery
 channels
 via
 cost
 effective
 and
 efficient
means.
 Through
 the
 micro‐banking
 offices
 (Circular
 694)
 and
 the
retail
payments
ecosystem
powered
by
electronic
money
(Circular
649
and
704),
your
banks
can
transact
with
a
much
wider
market
than
what
traditional
concrete‐and‐steel
offices
can
allow.

More
recently,
 the
 Monetary
 Board
 lifted
 the
 5‐at‐a‐time
 limit
 on
branch
applications
so
you
can
expand
faster
depending
on
your
abilities.

 
 I
 take
 much
 pride
 and
 pleasure
 to
 see
 the
 best
 of
 you

seizing
 the
 emerging
 opportunities
 presented
 by
 these
 new
ground‐breaking
 BSP
 regulations.
 
 
 You
 may
 not
 know
 that
globally,
we
are
a
thought
leader
in
innovative
financial
inclusion
policies.

 
 But
not
all
banks
are
ready
and
able
to
take
on
these
golden
opportunities.
 And
 this
 leads
 me
 to
 my
 second
 point.
 
 You
 must
constantly
 elevate
 the
 quality
 of
 the
 management
 and

 3

    • governance
 of
 your
 banks.
 
 This
 will
 ensure
 your
 strength,
 your
stability
and
your
ability
become
true
agents
of
financial
inclusion.

 
 Bob
Tricker,
author
and
corporate
governance
expert,

said
“….that
 management
 is
 about
 running
 the
 business
 while
governance
 is
 about
 seeing
 it
 run
 properly…..”
 I
 agree.
 
 We
 see
both
 components
 as
 equally
 important
 for
 rural
 banks
 as
 you
continue
to
work
toward
increasing
the
value
of
your
businesses
and
your
social
value
to
your
clients.

 
 Toward
 this
 end,
 we
 are
 undertaking
 multiple
 and
simultaneous
 initiatives
 to
 help
 you
 in
 your
 task.
 On
 the
 policy
and
regulation
side,
I
will
talk
about
three
specific
issuances
that
will
 provide
 you
 with
 the
 necessary
 frameworks
 and
 tools
 to
strengthen
your
internal
management
and
governance
systems.

 
 First
 is
 our
 recent
 Circular
 on
 Corporate
 Governance
(Circulars
 748
 and
 757)
 which
 emphasizes
 the
 importance
 of
 the
leadership
 role
 of
 the
Board
 of
 Directors,
 its
 capacity
 to
 exercise
sound
judgments
as
well
as
the
self‐discipline
to
ensure
that
there
is
a
strong
system
of
checks
and
balances
in
the
bank.


 
 Key
 provisions
 include
 an
 enhanced
 requirement
 for
 the
minimum
number
of
independent
directors
to
at
least
20%
of
the
total
 number
 of
 directors
 but
 in
 no
 case
 lower
 than
 the
 legal
minimum
 requirement
 of
 two.
 
 Independent
 directors
 must
 also
conform
 to
 SEC
 rules
 prescribing
 a
 5‐2‐5
 term,
 wherein
 an
independent
director
can
only
serve
as
such
in
the
same
company
for
 five
 (5)
 consecutive
 years.

 The
 term
 may
 be
 extended
 for
another
 five
 (5)
 consecutive
 years
 only
 after
 a
 two‐year
 (2)
"cooling
 off"
 period.

 Further,
 if
 your
 independent
 director
 is
 a
member
 of
 any
 committee
 that
 exercises
 executive
 or
management
 functions,
 he
 or
 she
 can
 not
 be
 a
 member
 in
committees
that
perform
independent
oversight
functions.

These
rules
apply
prospectively
so
you
can
adjust.

 4

    • 
 You
will
notice
that
much
focus
is
being
given
to
these
issues
as
 many
 bank
 failures
 ultimately
 reflect
 the
 failure
 of
 good
governance.
 I
 hope
 that
 you
 do
 not
 see
 these
 new
 guidelines
 as
an
added
burden
of
compliance
but
an
opportunity
for
your
Board
of
Directors
to
be
enriched
by
the
additional
insight,
perspective
and
 objectivity
 that
 an
 honest‐to‐goodness
 independent
 director
can
provide.

 
 Another
 measure
 to
 ensure
 quality
 and
 avoid
 conflict
 of
interest
 is
 the
 explicit
 prohibition
 on
 the
 Chief
 Executive
 Officer,
Chief
 Financial
 Officer
 and/or
 Treasurer
 from
 being
 part
 of
 the
audit
 committee.
 
 In
 general,
 there
 are
 also
 specific
 rules
 and
guidelines
 regarding
 the
 required
 Board
 Committees
 which
include
 audit,
 corporate
 governance
 and
 risk
 oversight.
 
 In
applying
the
principle
of
proportionality,
however,
only
the
Audit
Committee
 is
 the
 required
 committee
 for
 small
 banks.
 The
oversight
 functions
 of
 the
 other
 mandated
 committees
 may
 be
directly
conducted
by
the
Board
itself.

 
 Good
corporate
governance
is
integral
to
any
type
and
size
of
organization.

More
so
for
banks
whose
funding
predominantly
comes
 from
 the
 general
 public
 and
 whose
 loans
 serve
 the
community.
 
 Corporate
 governance
 principles
 are
 made
 alive
 by
the
 objectivity,
 integrity,
 
 and
 competence
 of
 the
 Board,
 which
sets
the
tone
at
the
top.

The
challenge
takes
on
greater
urgency
and
 importance
 in
 the
 context
 of
 
 family‐run
 
 and
 controlled
banks
where
the
temptations
for
abuse
are
more
bewitching.

 
 The
fact
is
so
many
of
you
have
already
demonstrated
that
this
discipline
and
self‐control
are
achievable.

That
is
why
we
are
firm
 in
 our
 conviction
 that
 the
 rural
 banking
 system
 today
 is
fundamentally
 stronger
 than
 ever
 before
 in
 spite
 of
 sporadic
negative
stories.


Good
corporate
governance
is
an
investment
in
your
bank’s
reputation,
which
is
of
paramount
importance
in
the

 5

    • business
of
banking.


And
that
tradition
of
good
governance
must
live
 on
 and
 transfer
 smoothly
 to
 the
 next
 generation
 through
effective
succession
planning.
 
 The
 other
 regulation
 is
 our
 Circular
 on
 the
 Revised
Compliance
Framework
for
Banks
(Circular
747).

Building
on
our
initial
 compliance
 system
 circular
 issued
 in
 1997
 in
 the
 wake
 of
the
 Asian
 Financial
 Crisis.
 
 This
 new
 circular
 defines
 compliance
not
 simply
 as
 narrowly
 following
 to
 the
 letter
 of
 rules
 and
regulations
as
they
are
written
but
more
broadly
expects
a
higher
standard
in
the
overall
handling
of
the
banks’
business
that
it
may
always
 be
 perceived
 as
 a
 law‐abiding,
 responsible,
 and
respectable
corporate
citizen.

 
 In
line
with
this
broader
scope,
let
me
point
out
some
of
the
key
 amendments.
 
 Chief
 compliance
 officers,
 who
 possess
 the
necessary
skills
and
expertise,
should
ideally
be
a
full‐time
senior
officer
 with
 no
 line
 function
 and
 who
 has
 direct
 access
 to
 the
Board
 of
 Directors.
 This
 requirement
 underscores
 the
 crucial
aspects
of
competence
and
independence
that
are
necessary
for
such
a
critical
position.

 
 We
 realize
 that
 this
 requirement
 may
 be
 an
 obstacle
 for
smaller
 banks
 and
 have
 therefore
 allowed
 such
 banks
 to
designate
 a
 non‐executive
 member
 of
 the
 Board
 as
 chief
compliance
officer
on
concurrent
capacity.


 
 The
new
rules
are
not
about
just
submitting
to
BSP
yet
again
another
manual
that
will
gather
dust
in
the
shelves.

Instead,
the
bank
 must
 adopt
 and
 implement
 a
 compliance
 system
 duly
approved
 by
 its
 Board.
 This
 amendment
 highlights
 our
 view
 that
having
 an
 effective
 compliance
 system
 in
 place
 is
 ultimately
 for
the
 bank’s
 benefit
 and
 is,
 therefore,
 the
 responsibility
 of
 the
bank’s
 leadership
 to
 ensure
 that
 such
 system
 is
 carefully
developed
and
implemented.


 6

    • 
 You
 will
 note
 that
 our
 approach
 in
 both
 corporate
governance
 as
 well
 as
 compliance
 veers
 away
 from
 a
 checklist
requirement
approach
and
instead
refocuses
the
responsibility
on
your
banks
since
it
is
ultimately
in
your
interest
to
ensure
that
you
have
well
run
operations.

 
 In
 addition,
 you
 will
 notice
 our
 earnest
 desire
 to
 fully
appreciate
 the
 uniqueness
 of
 rural
 banks.
 While
 the
 general
principles
should
be
strictly
applied,
we
recognize
that
a
judicious
and
proportionate
approach
to
implementation
is
but
proper.

Let
us
dialogue
and
engage
to
achieve
that
healthy
balance.

 
 The
 other
 issuance
 that
 aims
 to
 improve
 the
 quality
 of
governance
 of
 your
 banks
 is
 through
 enhanced
 transparency
 in
dealings
with
your
clients.

 
 We
have
recently
issued
Circulars
730
on
loan
transparency
and
 disclosure
 to
 enhance
 the
 implementation
 of
 the
 Truth
 in
Lending
Act.

It
is
essentially
a
fairness
initiative.

 
 In
 the
 initial
 stages
 of
 consultation,
 rural
 banks
 expressed
their
concern
 that
 such
 rules
 may
 create
an
 uneven
playing
field
since
your
banks
co‐exist
with
other
types
of
credit
providers
that
may
 not
 be
 subject
 to
 similar
 rules.
 
 We
 heard
 you
 and
 have,
therefore,
 issued
 succeeding
 regulations
 (Circulars
 754
 and
 755)
to
cover
non‐bank
financial
institutions
and
non‐supervised
credit
granting
entities
which
include
even
in‐house
credit
providers
like
real
 estate
 companies
 and
 auto
 dealers.
 We
 have
 also
coordinated
 with
 the
 Securities
 and
 Exchange
 Commission,
Insurance
 Commission
 and
 the
 Cooperative
 Development
Authority
 to
 issue
 parallel
 regulations.
 They
 have
 promptly
responded
 and
 provided
 rules
 for
 credit
 granting
 entities
 under
their
 jurisdiction.
 By
 casting
 a
 wide
 and
 comprehensive
 net,
 we

 7

    • assure
that
there
will
be
a
level
playing
field
in
the
application
of
these
rules.

 
 We
 recognize
 that
 your
 banks
 will
 have
 to
 make
considerable
 changes
 and
 efforts
 not
 just
 in
 your
 systems
 and
loan
 documents
 but
 also
 in
 assessing
 your
 existing
 products
 and
their
 pricing
 as
 well
 as
 in
 educating
 your
 customers.
 
 We
 know
that
 it
 isn’t
 easy.
 
 Yet,
 we
 hope
 that
 you
 realize
 that
 these
 are
important
 steps
 that
 need
 to
 be
 taken
 by
 responsive
 as
 well
 as
responsible
financial
service
providers.
 
 On
 this
 matter,
 let
 me
 take
 this
 opportunity
 to
 thank
 and
congratulate
 the
 RBAP
 and
 the
 RBAP
 Development
 Foundation
Inc.
 for
 being
 proactive
 in
 cascading
 this
 important
 initiative
 to
your
members.
Your
role
is
an
invaluable
part
of
our
hope
to
have
a
smooth
implementation
of
these
rules
come
July
and
beyond.
 
 These
 issuances
 are
 further
 supported
 by
 other
developments
 that
 have
 the
 potential
 of
 strengthening
 the
 rural
banking
sector.

 
 One
 of
 which
 is
 the
 recently
 approved
 Strengthening
Program
for
Rural
Banks
Plus
or
SPRB
Plus.
As
you
may
know,
the
original
SPRB
will
end
in
August
of
this
year.
The
Monetary
Board
has
 approved
 in
 principle
 the
 SPRB
 Plus
 which
 aims
 to
 continue
the
gains
made
toward
the
strengthening
and
consolidation
of
the
sector.

Earlier,
the
PDIC
approved
the
initiative
as
well
since
this
is
 a
 joint
 program.
 
 New
 components
 and
 elements
 of
 the
Program
are
a
result
of
some
of
the
lessons
learned
from
the
first
phase.
These
include
the
wider
range
of
acceptable
Strategic
Third
Party
 Investors
 (STPIs)
 or
 so‐called
 “white
 knight”
 such
 as
 strong

rural
 banks,
 thrift
 banks,
 universal/
 commercial
 banks,
 non
 bank
corporations
 as
 well
 as
 even
 groups
 of
 companies.
 Apart
 from
this,
incentives
to
white
knights
have
also
been
expanded
such
as
waiver
 of
 branch
 licensing
 fees
 to
 the
 extent
 of
 capital
 infused,

 8

    • among
others.
If
the
white
knight
is
a
rural
bank,
branches
can
be
established
 up
 to
 the
 same
 number
 of
 the
 branches
 of
 the
acquired
 bank
 with
 the
 theoretical
 capital
 and
 processing
 fee
waived.
 Once
 finalized,
 this
 new
 program
 will
 be
 in
 effect
 until
December
2013.

 
 What
should
be
clear
is
that
BSP
and
PDIC
have
now
put
on
the
 table
 all
 the
 incentives
 it
 can
 think
 of
 and
 legally
 provide
 to
decisively
enlarge,
once
and
for
all,
the
solid
core
of
a
sound
rural
banking
system.
 
 Another
development
is
the
current
proposed
bill
advocated
by
RBAP
that
is
in
the
Senate
and
House
of
Representatives
that
is
looking
 at
 allowing
 up
 to
 60
 percent
 foreign
 equity
 into
 rural
banks,
 similar
 to
 the
 policy
 on
 other
 banks.
 We
 support
 this
initiative
 which
 provides
 the
 promise
 of
 game‐changing
investments
from
strong
and
reputable
foreign
institutions.

 
 With
 all
 these
 in
 place,
 I
 think
 we
 have
 fertile
 ground
 on
which
 rural
 banks
 can
 continue
 to
 blossom
 into
 strong,
 well‐managed,
 professionally
 run
 and
 responsible
 banks.
 The
 various
developments
 that
 I
 just
 mentioned
 are
 converging
 to
 pave
 a
clearer
path
for
a
rural
banking
system
with
the
gravitas
to
lead
the
way
to
a
truly
inclusive
financial
system.

 
 Whatever
 the
 nay‐sayers
 snidely
 remark,
 the
 objective
numbers
are
unmistakable.

The
core
of
the
rural
banking
system
is
 vibrant
 and
 solid.
 
 Well‐capitalized.
 
 Very
 liquid.
 
 Highly
profitable,
head‐to‐head
with
the
big
banks
in
performance.
 
 As
 I
 listened
 to
 the
 report
 card
 on
 the
 MABs
 program,
 we
can
only
be
more
convinced
of
what
has
been
done
and
can
still
be
 done
 by
 the
 rural
 banks.
 
 Your
 core
 business
 has
 remained
solid,
 with
 your
 gross
 total
 loan
 portfolio
 of
 PhP
 110
 billion
 and
deposits
of
PhP
113
billion,
both
an
increase
from
the
levels
of
the

 9

    • year
prior.

But
we
also
know
that
these
figures
are
of
rural
banks,
both
 strong
 and
 weak.
 We
 also
 know
 that
 while
 the
 system
 is
generally
 strong,
 negative
 perceptions
 caused
 by
 pockets
 of
failure
 can
 lead
 to
 ripples
 of
 uncertainty,
 whether
 warranted
 or
not.
 It
 is
 therefore
 in
 your
 collective
 interest
 to
 commit
 to
 the
needed
 reforms
 and
 take
 advantage
 of
 the
 many
 opportunities
that
are
available
to
you.


 
 The
 two
 points
 that
 I
 started
 with:
 committing
 to
 quality
management
 and
 governance
 and
 taking
 your
 strategic
 place
 as
drivers
 of
 financial
 inclusion,
 align
 squarely
 with
 your
 theme
 of
“Aiming
 High”
 in
 charting
 a
 clear
 path
 toward
 a
 vibrant
 rural
banking
future.

 
 I
cannot
say
often
enough
that
the
rural
banking
system
is
a
true
 and
 unique
 gem
 of
 our
 financial
 system.
 
 As
 the
 world
realizes
 the
 transformative
 power
 of
 financial
 inclusion
 and
embraces
that
agenda
in
re‐connecting
the
financial
system
with
the
real
economy,
your
shining
moments
are
just
ahead
of
you.
 
 But
 like
 diamonds
 in
 the
 rough,
 one
 must
 chip
 away
 ,
 one
must
grind,
one
must
cut,
one
must
polish,
one
must
design,
one
must
 cluster
 if
 necessary,
 with
 purpose
 and
 determination,
 with
patience
and
skill,
and
with
tender
care,
to
bring
out
the
brilliance
and
beauty
of
potential.
 
 Maraming
salamat
po.

Mabuhay
ang
ating
mga
rural
banks.

Mabuhay
 kayong
 lahat
 na
 siyang
 matatag
 at
 mahusay
 na
 taga‐pangalaga
ng
ating
mga
bangko.

 10