For those Filipino residents abroad and are looking for an investment opportunity in the Philippines, consider making an investment in a rural bank. There is currently legislation pending that will allow foreigners to invest in rural banks. Unlike big commercial banks, a rural bank is small enough to be managed efficiently and if properly managed can make a great community benefit to those who need access to credit.
From BusinessWorld Philippines
July 25, 2012
Rural banks seek cap on foreign equity
FOREIGNERS’ stake in rural banks must be capped at 40% to prevent the overconcentration of ownership in their hands, said the newly elected head of the Rural Bankers Association of the Philippines (RBAP).
“RBAP members are divided on their stance on the entry of foreign equity in rural banks. Some want up to 40%, while others are pushing for up to 60%. I think 40% is better for the rural banking industry,” said RBAP President Edward Leandro Z. Garcia, Jr. after the induction of the new set of RBAP officials on Tuesday night.
Mr. Garcia replaced Ian Eric S. Pama as the association’s president.
While pointing out the entry of offshore equity through foreign institutions such as the International Finance Corp. in rural banks would strengthen banks’ financial base and “professionalize management,” Mr. Garcia said allowing foreign individual investors to hold a majority stake in rural banks is another case.
“If a foreign individual will come to the Philippines and buy a rural bank, I doubt how the central bank will be able to throughly check on his or her history because regulators will simply ask for his background,” he said.
“My fear is, we do not know the ‘real interest’ of these individuals who want to gain a majority stake in rural banks. Besides, it is not that simple to get someone to go to far flung areas to manage a rural bank,” he added.
“The RBAP’s official stand on the matter is to allow up to 60% foreign equity in rural banks, but since there are members pushing for 40%, then we plan to present the side of those pushing for 40% to the legislators at the Senate.”
Section 4 of Republic Act No. 7353, otherwise known as the Rural Bank Act of 1992, states that “…the capital stock of any rural bank shall be fully owned and held directly or indirectly by citizens of the Philippines or corporations, associations or cooperatives qualified under Philippine laws to own and hold such capital stock…”
This provision effectively isolates rural banks as the only category of local banks not allowed to have foreign ownership.
Foreign investments in commercial and thrift banks are allowed by law.
House Bill No. 5360, sponsored by Leyte Rep. Sergio F. Apostol and Cagayan de Oro Rep. Rufus B. Rodriguez, which proposes changes to the RA 7353, has already been approved by the House of Representatives on third reading on Dec. 5, 2011 and was transmitted to the Senate on Dec. 7, 2011.
HB 5360 proposes to allow rural banks to allow non-Filipino citizens to own, acquire, or purchase up to 40% of the voting stock of a rural bank.
Meanwhile, Senate Bill No. 3089, introduced by Sen. Edgardo J. Angara, also proposes up to 40% foreign ownership in rural banks. It is pending at the Senate committee on banks, financial institutions and currencies.
As of the first quarter, there were 574 rural banks.
“In the end, it all boils down to the management of the bank, who and how they will manage a rural bank,” Mr. Garcia said.
“Good governance, the people managing a rural bank and a strong capital base will always be the important factors to prevent closures of rural banks,” he said. – Ann Rozainne R. Gregorio