BSP closes four Pangasinan rural banks

December 28, 2009 at 12:23 pm Leave a comment

By Yolanda Sotelo

DAGUPAN CITY – The Bangko Sentral ng Pilipinas has closed down four rural banks in Pangasinan –the Kaunlaran Rural Bank in Manaoag on December 1, and the Rural Bank of Bautista, Rural Bank of Malasiqui and the Corfarm Rural Bank of Umingan on December 10.

The BSP put the banks under receivership of the Philippine Deposit Insurance Corporation (PDIC).

The closure of four rural banks has sent the rural banking industry into an overdrive to win back the trust and confidence of depositors.

Gregory de Guzman, president of the Joint Federation of Northern Luzon Rural Banks and special assistant to the president of the Pangasinan Rural Bank Dagupan, said the closure of the four banks is resulting in heavy withdrawals from even the strong banks.

“But we already anticipated the massive withdrawals and we are ready. We just have to patiently explain the banks’ condition to our clients, even showing them the records to show that we are financially stable,” de Guzman said.

“The clients will test your stability by withdrawing large amounts. So we try our best to be liquid, meaning we always make it a point to have available cash for heavy withdrawals, even if we have to borrow from government financing institutions or other banks,” de Guzman said.

If after a week of heavy withdrawals, the rural bank does not show signs of running out of cash, panicking clients are pacified and the situation stabilizes, he added.

The rural banking industry is beaten black and blue from the recent events, primarily the impact of collapse of the Legacy Group which “greatly affected” the entire industry.

The Legacy Group’s collapse painted a bad image of the rural banking industry and depositors thought they should not trust rural banks with their money, de Guzman said

“The industry has not completely recovered from the stigma brought by Legacy Group’s collapse, then followed by the closure of the four banks, and then there is the global warming,” he said.

“Yes, Global warming which bring calamities like typhoons intensely hit the rural banks, too,” de Guzman claimed.

This is because rural banks are encouraged to service the financial needs of farmers and fishermen, specifically for fertilizers and pesticides (farmers) and fingerlings and feeds (fishermen).

Farmers and fishermen usually pay after harvest, but when calamities strike, like the recent massive flooding which submerged and destroyed crops and overflowed fishpens, they can’t pay the loan, he said.

The rural banks help them by re-structuring the payment. Farmers and fishermen sometimes opt not to plant or stock the following season and find other jobs like construction work.

“But small farmers and fishermen are the best of payers. When they are able to pay back from their earnings, they go to us to get loan again for their agricultural inputs,” de Guzman said.

At least 95 percent of rural banks are still family-owned and the officers and board members are usually siblings or close family members.

This could be an advantage as bank owners enjoy good reputations in their communities and would not do anything to tarnish their name but, sometimes, family squabbles hinder good management so the banks are affected, de Guzman said.

To help the ailing industry, the BSP proposed the merger of rural banks to make them stronger.

This is what the Rural Bank of Pangasinan (different from Pangasinan Rural Bank) and the Burgos Rural which was on the brink of collapse, did. Unlike most rural banks, the merged banks has very low interest rate at 3 percent per annum for time deposit.

But de Guzman said not all rural banks are amenable to merging, especially those perceived to be weak.

“Sometimes, pride get in the way and families owning the banks don’t want to lose control,” de Guzman said.

But De Guzman said with the help the banks are getting from the BSP plus the “doable” measures the banks are implementing, they hope to recover soon.

Entry filed under: News.

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