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Kimberly Kwan

on 5 August 2014

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Rural Banks
History of Rural Banking in the Philippines
Basic Purpose of implementing policies
Functions of a Rural Bank
- government-sponsored/assisted banks which are privately managed and largely privately owned that provide credit facilities to farmers and merchants, or to cooperatives of such farmers or merchants at reasonable terms and in general, to the people of the rural community. Micro, Small and Medium Enterprises(MSMEs).
- It is the process of conducting banking transactions out in the country where bank branches are too far away to be of use.
June 1952- enactment of Republic Act 720 which established rural banks in the Philippines.

The enactment was done at the time when the country was reeling from the devastation of the Second World War and the rural areas, home to 85% of the population then, were truly underdeveloped. The rural banks, under the rules, regulation and supervision of the Central Bank of the Philippines, continuously provide credit and other banking services to farmers, fisher folks and rural business people to improve the quality of life in the countryside.
In view of the importance of rural banking in rural and agricultural development, central government banks
granted incentives to organizers of rural banks.
Such incentives include
tax exemptions and nominal interest rates.
These incentives are intended to encourage the formation of more rural banks in the areas where credit facilities have been inadequate. It has been noted that with the absence of banks in these areas the poor consumers and small producers have been forced to patronize the unlicensed money lenders who are mostly usurers.
Rural as well as cooperative banks are the most popular type of banks in the rural communities. They are differentiated from each other by ownership. Rural banks are privately owned and managed, cooperative banks are organized/owned by cooperatives or federation of cooperatives.
A rural bank may offer or perform any or all of the following services:

1) Grant loans and make investments in accordance with existing rules and regulations.

2) Accept savings and time deposits.

3) Sell domestic drafts.

4) Act as correspondent for other financial institutions.

5) Receive in custody funds, documents, and other valuable objects, and rent safety deposit boxes for the safeguarding of such objects.

6) Act as financial agent, buy and sell, by order of and for the account of its customers, shares, evidences of indebtedness and all types of securities.

7) Make collections and payments for the account of others and perform such other services for its customers as are not incompatible with banking business.
Present Condition of Rural Banking in the Philippines
Though rural banks only account for 2.6% of the banking sector assets in the Philippines, it dominates the industry with a share of 93.5 percent and serves to 70% of the total banking clients.

Current position
The simple ratio of capital accounts to total assets indicates that the ruralbanking sector overall is well capitalized.
• Many independent provincial banks have less capital than the minimum requirement.
The Philippine Deposit Insurance Corporation (PDIC) states that 103, or 15% of the rural banks, are currently undercapitalized. An additional 10% of banks fail to comply with regulations for other reasons, so that 25% of rural banks are in the PDIC’s Prompt Corrective Action program.
PDIC has earmarked PhP5bn, to supply 50% of the capital needs to bring currently undercapitalized banks to capital adequacy. PhP10bn is equivalent to 6.8% of the current total assets of the rural banks.

Rural banks have a higher ROE and ROA than the commercial banks.
Return On Assets (ROA)- An indicator of how profitable a company is relative to its total assets.
Return On Equity (ROE)- The amount of net income returned as a percentage of shareholders equity

Increase in Non-performing Loan(NPL)- from 2010 to 2012 was the result of typhoons and calamities: El Niño and 29 typhoons in 2010-2011, and Typhoon “Pablo” in 2012, which destroyed P34.4 billion worth of private infrastructure and agricultural property.
Growth of Total Loan Portfolio (TPL)- increased from P4.5 billion in 2011 to P110.70 billion in 2012—also contributed to the NPL increase. This means that with more money being lent, there would be a slight projected increase in the NPL.
• Republic Act 10574- makes rural banking stand a good chance of getting more resources needed for expansion and making their financial services more accessible to people in the countryside. It is also expected to reduce rural bank closures.
Based on the TLP, capitalization and other performance indicators, the rural banking industry is in a far better position today than it has ever been in the past.

-organized in a form of a stock corporation with
no less than five nor more than fifteen incorporators.
- Filipino citizenship, of good moral character and integrity, financial capacity in their own rights to meet their commitments, good credit standing, and not convicted of any crime involving moral turpitude.

*The rural bank shall have a paid-up capital of not less than P500,000, the initial amount og P300,000 to be put up at the start of operations and remaining P200,000 to be paid within a period of three years from the start of operation.
The authorized capital of the rural bank shall
not be less than P1Million
and shall be divided into common and preferred stock, both with par value of from P10 to P100 per share.
Directors and Officers
The president and at least a majority of the key executive officers of the bank must be actual residents of the locality where the rural bank is operating.

Consanguinity (blood relationship) or affinity (marriage relationship)- key executive officers such as the president, vice-president, manager, treasure, cashier and accountant must not be related to one another
No individual or family group (those related within 3rd degree of consanguinity or affinity) shall own or control more than 35% of the voting shares upon organization of the rural bank
No officer or director of a rural bank can be an officer or director of another rural bank
Persons connected in the government, whether by election or appointment, cannot serve as officers of the rural bank.
Organizers are required to accomplish and submit to the Bangko Sentral the articles of incorporation and by-laws; the bio-data of each incorporators, subscribers and officers and a list of principal officers who will manage the bank.
The rural bank, upon prior approval of the Monetary Board, performs any or all of the following services:
1.Open current, demand or checking accounts or Now accounts
2.Act as trustee over estates or properties of farmers and merchants.
3.Acts as official depository of municipal, city or provincial funds in the municipality, city or province where the bank is located.
4.Rediscount paper with the Philippine National Bank or the Development Bank of the Philippines, or other banks and their branches and agencies, subject to such rules and regulations governing rediscounting.
5.Invest in allied undertakings.

Total Number and list of Rural Banks
There were only 18 rural banks operating then in 1853, but now there are 711 rural banks (with 1,959 branches/other offices) all licensed in the Bangko Sentral ng Pilipinas
Top 5 Rural Banks in the Philippines
1. Bank of Makati (A Rural Bank)

20.3 Billion Pesos in Assets as of June 2012

Head Office:
44 Sen. Gil J. Puyat Ave.
Bgy. San Isidro, Makati City
Email: rebbanares@yahoo.com
Customer service hotline: 889-0000 local 902

- First and only rural bank to get into Business Profiles' List of the Top 500 Corporations in the Philippines, based on gross revenues in 2010. It is No. 266 on the list.
- No. of Offices: 27
- Total assets as of June 2012: 20.3 billion pesos
- Deposits as of March 2012: 12.054 billion pesos
- Non-performing loans: 14%
- Return on Equity: 49%
- Tier 1 CAR: 25%
- Opened on September 22, 1956
- Sister companies: Motortrade, Honda Prestige Traders, Fundline Finance Corp. and Global Reciprocal Colleges
- The only rural bank among the 14 banks participating in the
Bankers-Builders-Buyers (B-B-B) Program housing loan program of the Home Guaranty Corporation (HGC)

2. One Network Bank, Inc. (A Rural Bank)

15.7 Billion Pesos in Resources as of December 31, 2011

Head Office:
Km. 9 Sasa, Davao City
Email: onbri@onenetworkbank.com.ph
Website: onenetworkbank.com.ph

- Largest rural bank network in Mindanao
- No. of Offices: 86
- ATM network: 126 onsite and offsite PeraAgad ATMs
- Deposits as of Dec 31, 2011: 10.5 billion pesos
- Non-performing loans as of Dec 2011: 3%
- Risk-Based CAR as of Dec 2011: 19%
- SSS Best Collecting Rural Bank and Best Paying Rural Bank in 2011
- Will have 97 branches after it completes its merger with 6-branch Rural Bank of San Enrique in Iloilo
- Has 525,000 active depositor accounts by the end of June 2011
3. Card Bank, Inc. (A Microfinance - Oriented Rural Bank)

3.78 Billion Pesos in Assets as of July 2012

Head Office:
20 M. L. Quezon St., City Subdivision
San Pablo City, Laguna
Email: info@cardbankph.com

- No. of Offices: 49
- Online network: 348 OBOs
- Opened on September 1, 1997
- No. of clients including savers: 695,091
- First microfinance NGO to become a rural bank
- One of the seven signatories in the creation of the country's microfinance credit bureau
4. 1st Valley Bank, Inc. (A Rural Bank)

3.5 Billion Pesos in Assets as of 1st quarter of 2009

Head Office:
Baroy, Lanao del Norte
Vamenta Blvd., corner Lirio St., Carmen, Cagayan de Oro City
Email: kapataganvalley@rbap.org

- No. of Offices: 22 branches and 8 financial solution centers
- Opened on November 24, 1956

5. Bangko Kabayan (A Rural Bank), Inc.

2 Billion Pesos in Resources as of the end of 2012

Head Office:
Santiago St., Poblacion, Ibaan, Batangas
Email: fsganzon@gmail.com; hrd@bangkokabayan.com

- No. of Offices: 16
- Total resources to reach 2 Billion Pesos by the end of 2012, as announced at the bank's March 2012 stockholders' meeting
- The only Eagle Achievement Awardee for 2011 by the Rural Bankers Association of the Philippines Microenterprise Access to Banking Services (RBAP-MABS), won award for the 7th time
- Was established as Ibaan Rural Bank in August 1957 and was renamed Bangko Kabayan on its 40th year
- Was ranked among the top 3% of rural banks in the Philippines in 2008
- Publisher of a lively magazine-like newsletter called TINIG
- Most Outstanding Countryside Financial Institution in Region 4A (Landbank 2012 CFI Awards)
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