Bangko Sentral: Rural bank’s closures part of ‘housecleaning’

RURAL banks’ profits may suffer and their bad loans climb as the economic crisis bites, the central bank said. The closures since the start of the year, however, could not be taken as indication of an ailing sector, it stressed, but as part of its “yearly housecleaning” to ensure that rural banks are safe to put money in.

“It is possible that as the domestic economy slows in light of the global crisis, some rural banks may feel the impact on profitability and perhaps, a deterioration of [asset quality],” Amando M. Tetangco Jr., Bangko Sentral ng Pilipinas (BSP) governor, said.

“Notwithstanding the closure lately of a handful of rural banks that had run into solvency problems, the rural banking industry remains well capitalized and profitable with strong balance sheets,” he added.

Excluding banks linked to the Legacy Group, the BSP has shuttered four rural banks since the start of the year after these declared bank holidays for failure to service withdrawals.

The most recent closure was on Friday, April 17, when the Bangko Rural of Kalumpit, Inc. in Bulacan was placed under the receivership of the Philippine Deposit Insurance Corp.

The central bank chief also said the closures of the Legacy rural banks have done little to dent the confidence in the rural banking sector.

“As you know, we have recently further clarified the definition of unsafe and unsound banking practices and heightened our information campaign (including partnerships with regional rural bank associations) so that the situation of contagion from the closure of these erring banks is limited,” Mr. Tetangco said.

“Rural banks continue to fulfill their role as catalyst for broad-based countryside development and channel for equitable allocation of funds to support productive activity in the rural communities.”

BSP data as of December showed that the number of universal, commercial, thrift, rural and cooperative banks fell to 818 from 847 in 2007. The number of bank offices, on the other hand, rose to 7,030 as of December from 6,897 the year before.

The number of rural banks, meanwhile, slid to 658 last year from 682 the year before but the number of bank offices rose to 1,362 in 2008 from 1,329 in 2007.

The central bank said this shows that despite closing banks on an almost regular basis, the public’s access to financial services has improved.

Central bank Deputy Governor Nestor A. Espenilla, Jr. said most banks that were closed were rural or thrift banks, which hold about a tenth of the banking sector’s total assets.

“From time to time, we close down rural banks and other types of small banks but very seldom do we close large banks,” Mr. Espenilla told reporters in a lecture in Laoag City over the weekend.

“Over time, even though the number of banks has declined, the number of offices that are able to serve the public has been increasing,” he said.

“The message is, ’don’t panic,” he said. “This is just part of the normal housecleaning to make sure our system is safe.” –Paolo Luis G. Montecillo

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