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SUSTAINING REFORMS FOR A MORE RESILIENT RURAL BANKING INDUSTRY |
| Speech delivered by Deputy Governor Amando M. Tetangco, Jr. at the Induction of Officers and Directors for 2005-2006 of the Rural Bankers Association of the Philippines on 30 June 2005 at the Corregidor Room, Century Park Hotel, Malate, Manila. |
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Good evening. Thank you for inviting me to be your guest speaker on this important occasion – the induction of the officers and directors of the Rural Bankers Association of the Philippines (RBAP).
First of all, let me extend my congratulations to the incoming officers and directors led by President William Hotchkiss III. RBAP’s new leadership remains crucial to its continuing efforts to foster a stronger and more responsive rural banking industry. I trust that with your dynamism and dedication, RBAP will continue to be our key partner in fostering a resilient financial system supportive of a balance and sustainable economic growth. My message for tonight focuses on the challenges confronting the rural banking industry as platforms for further cooperative partnership between RBAP and Bangko Sentral. The industry’s generally favorable performance in recent years is proof of its steadfast commitment to uphold stability in the banking system. The key challenge now for rural banks lies in sustaining growth and resilience as an industry. To hurdle this particular challenge, rural banks will have to continually embrace reforms that would enhance overall efficiency and competitiveness. A vital piece of reform constitutes the need to hasten asset clean-up and the reinforcement of the capital base. These are fundamental issues that need to be resolved in order for rural banks to contribute significantly to our country’s economic progress. The BSP has supported avenues to facilitate the disposal of these bad assets such as the Congressional extension of the SPV Law and some forms of regulatory relief. Rural banks will also have to persevere in strengthening their capital position either through consolidation or by being more open to broader public ownership. This will provide the necessary scale to achieve operational stability and efficiency as well as provide the competitive edge needed in an increasingly competitive environment. This will be highlighted in the coming periods as we move towards compliance with the International Accounting Standards by 2005 and as we shift to Risk-based Capital Requirements under BASEL II by the start of 2007. Although rural banks will have a different track in complying with BASEL standards, this should not prevent them moving in the direction of these requirements. Another fundamental challenge for rural banks is further raising the quality of corporate governance and risk management standards. Upholding these basic tenets will enable rural banks to compete more effectively and profitably without having to engage in excessive risk-taking. To support this, we will continue to harmonize our prudential regulations with internationally accepted standards. The Board of Directors will continue to play a more proactive role in the oversight of operations of their banks. We will expect directors and officers to be very well-informed and to be more attuned to meet increasingly demanding requirements such as the need for more rigorous risk measurement and management methods to support sound and informed judgments. Along these lines, the tasks ahead necessitate that we forge a more cohesive partnership in strengthening the rural banking industry. The BSP is here to provide technical support in the form of training and capacity-building programs. It is equally vital that we keep the lines of communication open to enable both parties to provide beneficial insights with regard to emerging issues. As we upgrade regulatory standards, the quality of the BSP’s banking supervision is expected to improve significantly. Our capabilities must remain at pace with these developments to ensure proper and effective enforcement of these prudential regulations. Specifically, we are raising the capacity and expertise of our bank personnel through training and investment in information technology to fully implement risk-based supervision techniques. However, there must be a well-defined legal basis for the above policy thrusts to be effective. We will continue to advocate with Congress on important amendments to the BSP Charter that will improve the legal protection for our personnel and provide the authority to compel banks to strengthen their capital position. These amendments will also provide the BSP with more effective enforcement measures such as setting more prohibitive monetary penalties. With a stronger banking landscape, the BSP is prepared to ease certain regulatory conditions that hinder greater operational flexibility among banks. We recognize that strong and healthy banks must have enough room from regulatory barriers to serve their markets better. This is well in line with our move to a risk-based supervision approach. One area that we are studying right now is the easing of the moratorium on bank branching to provide more avenues for extension of banking services, particularly in the countryside. Although we are prepared to provide operational flexibility to banks, we are also staunch advocates of consumer protection when it comes to banking and other related financial services. We recognize the need for banks to be fully transparent in the pricing of their services and disclosure of associated risks of their products so that consumers can make sound and informed investment decisions. In line with this, we will be expanding and increasing our advocacy for better financial literacy that will start at the grass-roots level. We are also working on improving the financial information highway through supporting legislation that will establish a centralized credit information bureau system. This initiative is expected to greatly expand credit access to ordinary citizens, lower the cost of borrowing and minimize credit risk exposures of financial intermediaries. Another area we are looking at is the fast evolving payment system, particularly those concentrating on overseas and domestic remittance transfers. These are well in line with our advocacy in channeling these resources via formal means. I believe this is an area that rural banks can also take advantage of, in terms of helping innovate ways on how we can effectively channel these remittances to productive endeavors and small businesses rather than just consumption. Given your wide network of banking offices, you are in a strategic position to be a catalyst in this undertaking. We are currently reviewing policies that will reduce transactions costs and address delivery issues, widen the distribution network and access, and provide appropriate protection mechanisms, realizing the growth potential in the remittance business. We will engage the private sector in drawing up a sustainable roadmap that will properly tackle potential system risks. Together with our commitment to ensuring overall financial system stability is our continuing special advocacy for sustainable microfinance. We count the rural banks as our major partners in this initiative as you are the dominant providers of microfinance lending. You continue to lead the way in tapping the vast productivity and growth potentials of the informal sector through microfinance. Sustaining this current financial reform momentum is a paramount initiative of the BSP in laying down the necessary pillars for sustained economic growth and development of the country. Your unending support and commitment in forging a stronger and more effective rural banking industry will definitely aid in building a robust financial system for a stable Philippine economy. Thank you and good evening. |
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