Amando M Tetangco, Jr: Thrift banks - moving forward through
responsive, responsible banking
Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines
(Bangko Sentral ng Pilipinas), at the Annual Convention of the Chamber of Thrift Banks,
Makati City, 13 March 2009.
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Ambassador Alfredo Yao, Immediate Past President, Mr. Pascual Garcia III, Incoming
President of the Chamber of Thrift Banks, Distinguished officers and members of the
Chamber, colleagues from the BSP, members of the media, special guest, ladies and
gentlemen, Good morning.
It is always a pleasure to keynote the Chamber's annual convention. This year, you have
certainly chosen a very appropriate and constructive theme - "Thrift Banks: Moving Forward
Through Responsive, Responsible Banking". I see being responsive and responsible as two
sides of the same coin - one side balances and completes the other. To illustrate, if you
were only reactive to changes around you but not mindful of the impact of your actions on
those around you, that could lead to discord. If, on the other hand, you are fully aware only of
your own obligation, without being sensitive to changes in your surroundings, that could lead
to stagnation. You have to be both - responsive and responsible - to be able to push
forward.
A convention's theme is only as good as the actions that will spring forth from it. So I ask the
question, what can the public expect from a responsible and responsive thrift banking
industry?
The thrift banking industry should be able to make the convention theme come to fruition,
despite the distractions of the current crisis. Ladies and gentlemen, you have a gem of an
opportunity to build upon a stable foundation. Through the difficult reforms that together we
had put in place over the last few years, our banking system has remained sound,
considering the scope and enormity of the current global financial crisis. In particular,
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The banking industry's balance sheet grew in 2008, despite stressed global
conditions, while both NPL and NPA ratios remained relatively stable. This is critical
when one recalls what it was like in the early months of the Asian Financial crisis
when comparable ratios were rising in large discrete increments.
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While profitability has and could be under further pressure, the capital of the banking
system as a whole is considerably well above international norms and our own
prudential standards.
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In addition, our real GDP growth of 4.6% in 2008 was not only notable vis-à-vis
other economies, it was further supported by the continuing deceleration in inflation,
which in February stood at 7.3%.
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On the external front, our Gross International Reserves is growing (all-time high of
$39.3 billion in February), the BOP was in surplus in 2008 and will also be in surplus
in 2009, and remittances from overseas Filipinos continue to flow, even though the
Peso has lost some ground since last year.
In sum, the banking system continues to be fundamentally sound and stable, and operates in
a macroeonomic environment that has stood resilient.
Given these, the material question that needs to be asked is: what do all of these banking
and economic indicators mean for your public?
Perhaps, it would be useful to go back to the law which created thrift banks. The Thrift Bank
Act of 1995 says that thrift banks are supposed to "promote agriculture and industry and at
the same time place within easy reach of the people the medium to long-term credit facilities
at reasonable cost". In other words, it is about developing a targeted economic activity and
providing term financing.
Building on this mandate, the thrift banking industry has developed itself, so as to offer far
more services and products to its banking public.
Today, under clear guidelines and appropriate approvals, thrift banks can perform trust
operations, act as a Foreign Currency Deposit Unit (FCDU), open domestic and foreign
letters of credit, engage in quasi-banking activities and undertake, where allowed, derivative
activities. These new functions are proof of the continuing progress of the industry, led by
your hardworking officers and directors of the Chamber. Recently, the Monetary Board
approved the lifting of the requirement to execute a Surety Agreement by any single
stockholder, natural or juridical, owning more than 50 percent of the voting stock of a bank
with an approved rediscounting line with the BSP. This was with the expressed intent of
facilitating the faster processing of rediscounting loans. Thee total rediscounting budget has
also been trebled to P60 billion and the loan value increased from 80 to 90 percent.
Herein lies the real challenge of your convention theme. To provide responsible and
responsive banking services, different types of banks must be able to cater to the varied
needs of differentiated constituents. It's not simply a matter of having access to as many
product types, but how one maximizes that privilege to serve his public best.
In the context of our financial infrastructure, we have commercial banks, thrift banks, rural
banks, and cooperative banks. We have do-it-all institutions like universal banks. In terms of
products, we have created curious concoctions like a "quasi-bank" which in the vernacular
translates to "parang bangko" and "deposit substitutes" which some have described as
"deposito na rin".
Clearly, thrift banks share many of the facilities and services that your commercial bank
brethren can employ. In fact all of the recently-BSP approved functions and products that you
could enter into are similarly possible for your counterparts in the commercial and universal
banking industry.
Thrift banks are also like rural banks, in that thrift banks remain positioned for the financing
requirements of the general public across the archipelago.
Now, however, with commercial banks positioned at the corporate high end and the rural
banks addressing the needs of the countryside, that leaves the "viable middle" as your
natural market. Ladies and gentlemen, you are well-positioned to take the cudgels for the
MSME sector, including the microfinance sector. I urge you to appreciate that you are much
closer to SMEs which represent the backbone of the Philippine economy. Instead of seeing a
disadvantage in allowed and disallowed activities, I encourage you to see the advantage of
your target market. This is not to be taken as a response to the on-going crisis. It goes
beyond the challenges of the current environment. It is to clearly define your target market,
and towards that be responsive and responsible.
Where does this leave you from a strategic and tactical stand point? One easy option is to
continue what you are already doing. As of September 2008, about 59 percent of the
industry's loan portfolio was in real estate, business activity and loans to individuals. Another
option, is for you to increase your loan portfolio for manufacturing and construction, two vital
industry segments that could help ensure that our domestic economy continues to grow
above long-term trend.
What is really critical for thrift banks at this juncture is to determine how to incorporate the
new facilities and offer new services to your public. With newer tools and more opportunities,
I expect that beyond improving your loan industry mix, the thrift banking industry would
expand its balance sheet and continue the improvement in your NPL ratios. As of September
2008, I see P482 billion in total assets, P334 billion in peso deposits and an NPL ratio
(inclusive of IBL) of 6.6 pct. These provide useful benchmarks against which we envision
significant improvements this time next year.
Ladies and gentlemen, I will not pretend that the road that lies ahead is free and clear for all
of us. We live in a global market that is experiencing a global shock and to a large extent
then, achieving improvements in our balance sheets is something we have to work for.
Perhaps, the biggest threat for us moving forward is if we persist to traverse the road of
financial risk without having a clear idea of our target market. If we try to become everything
to everyone, we become lost in a sea of look-alikes. However, if we specialize too much, we
narrow our target markets that it may become untenable for us to continue.
Let me then ask you the same question: what do all of these challenges mean to your
banking public? In answering this question, the key lies not with the public, your customers,
your clients. Instead, it remains with you and your ability to balance yourselves within myriad
needs. The way forward is for your institutions to develop core competencies in various
facets to allow you to co-exist with other financial institutions in a competitive world. There
too is no denying that each one of us needs to define and live within our target market. For
thrift banks, let me once again encourage you to focus on MSMEs even though in many
respects the label of "SME" is itself a simplification of complex requirements from evolving
clients.
Going back to the convention theme, I felt it was necessary to ask the difficult question: What
do all these mean for your public, your customers, your clients? If our financial market is to
make headway with the banking public, this is the question that always and continuously
should be asked. Remember, the evolution of the structure of our financial market must
constantly be guided by the best interest of the public that this market serves.
I realize that we can all move forward more expeditiously only within the confines of a strong
and stable financial and macroeconomic environment. This is why the BSP endeavors
through its policies to create an operating framework where financial markets could efficiently
function. It will, however, be important to remember that the relative strength and stability that
our markets enjoy today have come about through the lessons from our own past. The BSP
together with the banking industry will remain steadfast in our reform effort.
If we are to serve our public, we must continue to be responsive to their needs and to ensure
that we act responsibly, mindful of the trust bequeathed by our public on us. The term
"fiduciary responsibility" is not just a mantra that is conveniently brought out as the need
arises but it is instead a social contract with our most basic constituent.
This is the way forward and this is the high bar that must be set if we are to see responsive
and responsible banking bear fruit.
I have seen our market rise with resiliency when it was down. I have every bit of confidence
to know that it will find the answer to the difficult questions when our present position is that
of relative strength. It is after all, all about who we are who we serve, and, now is the time to
show what we are made of.
Thank you very much and good morning.