Amando M Tetangco, Jr: Turning challenges into opportunities
Speech by Mr Amando M Tetangco, Jr, Governor of the Central Bank of the Philippines, during the
50th Anniversary Celebratory Luncheon of Rang-ay Rural Bank, Inc. (Rang-ay Bank), Sevilla, San
Fernando City, La Union, 14 January 2006.
* * *
Governor Victor Ortega and Mayor Mary Jane Ortega, officers and staff of Rang-ay Bank led
by Chairperson Eufrosina Nisce and Rang-ay President Ives Nisce, co-workers in the banking sector
and colleagues from the government sector, distinguished guests, ladies and gentlemen:
Naimbag nga malem 'yo amin (Good afternoon)!
I am indeed honored to be among the witnesses of this momentous occasion. Thank you for
this privilege of being with you in celebrating your 50th anniversary.
Today, we all are witnesses to the realization of your founders' vision 50 years ago. And it is
certainly one exhilarating experience. This feat has significant impact to the banking industry and
most especially to the community that Rang-ay has been serving for half a century. Thus, I also take
this opportunity, to express Bangko Sentral's appreciation to the entire family of Rang-ay, particularly
for being consistently in congruence with all our policy and regulatory reform initiatives all these years.
Rang-ay at 50
Rang-ay Bank has undoubtedly lived up to its name. It has been bringing progress or should I say
"karangyaan" to the community it serves from the first moment it opened its doors as a pioneer private
bank in San Fernando, La Union on January 16, 1956.
Today, you understandably have the right to be proud of your accomplishments. The last
time we looked, you are still this region's number one bank and among the top 25 rural banks
nationwide in terms of both physical and financial resources.
Your strong presence in Region 1 as well as in the nearby Cordillera Region is made
possible by your network of ten branches (including that of a former affiliate - RB of Burgos).
You continue to enjoy the trust and confidence of over 15,000 depositors1 whose savings are
now close to half a billion.
Likewise, you have a relatively strong capitalization of 120 million. Rang-ay's risk-based
capital adequacy ratio (CAR) of 18.5 percent is also well above industry and regulatory standards.
Your total loan portfolio is nearly half a billion which accounts to 65.5 percent of your total
assets. Your lending activities have surely provided farmers and other entrepreneurial rural folks with
wider latitude in accessing credit which translated to better lives for the rural community.
With your wide array of deposit products and credit lending programs, you managed to
sustain bottom line figures at very good levels.
Rang-ay's performance definitely did not go unnoticed as evidenced by the various
accolades from financial and non-financial organizations2, the Bangko Sentral included.
As such, one can say that rang-ay is poised to further improve its level of efficiency to ensure
continuous market leadership during these challenging but equally rewarding times.
Industry outlook
Let me therefore take the next few minutes to outline the banking industry prospects in 2006 to help
you firm up your strategic plans for this year and beyond.
We are optimistic that the rural banking industry will sustain its positive performance this year and
remain in the forefront of reforms as catalysts of a broad-based development in the countryside.
For our part at the regulatory front, the BSP remains committed to the continuous implementation of
our reform program to sustain financial stability and growth. Specifically, our objective is to have a
more stable, more efficient and a more depositor and friendly banking system.
We are still advocating clean up of banks' balance sheets through the expedient and innovative
disposition of non-performing assets. This is central to restoring the credit supply to the productive
sectors of the economy.
Our goal is to bring the banking industry's NPA/NPL ratio to single-digit level. As of end-June 2005,
the rural banking industry's NPA/NPL ratios stood at 11.9 and 14.7 percent, respectively. This is still
double the pre-crisis period since the sale of NPAs under the SPV Law only created a small dent on
the inventory of acquired assets arising from soured loans.
We, thus, welcome the approval by the House of Representatives of the extension of the SPV Law3_
by another two years. We are hopeful that the senate will approve the counterpart bill soonest so that
banks can immediately resume the wholesale clean up of bad assets. We expect that this extension
will result in the unloading of at least another 100 billion in bad assets so that NPL ratio will more or
less be lowered to about 7 percent.
We are also studying if Joint Venture Agreements (JVA) can give greater flexibility to banks to dispose
of their bad assets apart from availment of incentives under the SPV Law. The unloading of foreclosed
real estate properties through joint venture agreements4 (JVAs) that will develop and enhance the
marketability of banks' acquired assets, particularly undeveloped properties, will not only clean up
banks' balance sheets but also potentially boost the housing market and even tourism.
Beyond asset clean up, the BSP is following through with its regulatory reforms aimed at further
strengthening corporate governance, risk management and capital adequacy in our banks through a
more effective and efficient enforcement.
Last year, we began the changeover to International Accounting Standards/Financial Reporting
Standards. This would further strengthen the current transparency and disclosure requirements in
financial reporting. The pivotal role of external auditors during this transition period is also being given
higher importance.
Recently, we have issued new regulations on internal audit designed to adopt a code of ethics and
establish mechanisms for the reporting of financial improprieties, malpractices and acts of misconduct
(corporate whistle-blowing).
We are also sustaining our lobbying efforts in congress for the passage of the amendment to the BSP
Charter and the enactment of the Credit Information System Act. The first will make the BSP a more
effective monetary authority and banking regulator while the other will pave the way for the
establishment of a truly comprehensive credit information system that is expected to lower the cost of
borrowing, provide greater access to credit in general and reduce the dependency on collateral based
lending.
Beyond regulatory initiatives, the BSP is also equally committed in its advocacy to promote a
sustainable microfinance program as a tool to alleviate poverty.
The present poverty situation in the Philippines has given rural financing a new dimension,
concretizing the significant role of rural banks in countryside development5 Toward this end, we have
recently allowed the selective6 lifting of moratorium on bank branching to facilitate the expansion of
financial services in underserved areas. Under Circular No. 505, we foresee, among others; the
growth of bank microfinancing to benefit rural folks with greater access to formal banking services that
in turn, mobilizes savings and investments.
Moreover, we foresee an accelerated consolidation process in the banking industry in the next 3
years. This will be brought about by (1) a stronger regulatory framework that will hasten the exit of
weak banks, hopefully on a voluntary and market-based basis; (2) the increasingly stronger
competition by new foreign investors coming in, in existing banks; and (3) the rigorous technical
demands posed by modern banking and finance standards.
All these changes will dramatically transform the competitive environment. Down the road, we see a
banking landscape characterized by a handful of main banks complemented by an abundance of
smaller banks that serve various well defined market niches.
Final note
In closing, let me call on this generation of the family behind rang-ay bank to transform these reform
initiatives into opportunities and further stretch your vision over the next years to come.
With your wealth of experience, rang-ay can lead in turning the heavy flywheel of remaining reforms
for the rural banking industry.
I trust that rang-ay will harness its core expertise, geographic advantage and strong ties with the
community in promoting a safe, sound and responsive banking system.
Let us all work together in keeping the wheels of change turning.
Agyamannak (thank you) and happy anniversary!