Published : Monday, January 23, 2012 00:00 Article Views : 276 Written by : RAADEE S. SAUSA REPORTER

BANKS, particularly thrift, rural and cooperative banks. can provide more financing support to micro, small and medium enterprises (MSMEs) especially those located in the provinces.

An Asian Development Bank (ADB) SME financing survey indicated that the universal and commercial banks (UKBs) remain as the primary source of MSME funds, accounting for over 72 percent of the total amount lent to the sector.

Niny Khor, an economist in the Economics and Research Department of the ADB, said that UKBs released about P6 billion in 2010 to MSMEs in direct loans, seven times higher than the average of thrift banks.

This even as thrift, rural and cooperative banks have managed to increase their market share to 27 percent during the year, from just 16 percent more than a decade ago.

“There is still room to grow for SME financing, especially in the micro-small segments,” she said in a forum.

Khor said that while there was a significant increase in bank branches in the last ten years, these were distributed unevenly across the Philippines and most concentrated in the National Capital Region (Metro Manila).

In 2007 alone, there were 2,689 banks that served MSMEs and people in Metro Manila; 1,210 in Calabarzon (Calamba, Laguna, Batangas, Rizal and Quezon or Region4A); and 885 in Central Luzon (Region 3).

These were much higher compared to only 24 banks in the Autonomous Region and Muslim Mindanao, and 119 to 543 banks in the other regions.

According to the SME financing survey, banks lend to MSMEs because of their perceived profitability, their existing relations with large clients. and because of intense competition for retail customers and from large corporations.

In the same forum, Khor cited the need to design better policies aimed to enhance MSMEs in the country.

“Helping small business is also inclusive in gender. In our data, we also found that about 60 percent of all Philippine enterprises are run by women,” she added.

MONDAY, 23 JANUARY 2012 19:18 JUN VALLECERA / REPORTER

CHARTER Ping An Insurance Corp., the non-life insurance arm of the Metropolitan Bank and Trust Co, sees microinsurance as a potentially rewarding revenue source and is on the lookout for micro-lending cooperatives as possible partners.

Charter Ping An Insurance President Melecio C. Mallilin bared the expansion plan at a briefing where he anticipated growing the company’s profits by 33 percent to P200 million this year.

Mallilin said they have explored various models of engaging the microinsurance business and understand they cannot market the product directly because the costs involved are high.

“We decided that partnering with cooperatives is the best possible model,” he said.

There are at present 21 microfinance-engaged cooperative banks listed by the Bangko Sentral ng Pilipinas (BSP), essentially cooperative lenders with less than half of their portfolio dedicated to the business of micro lending.

According to Mallilin, the insurance business observes the law of big numbers, one in which the potential profit is a function of the extent of its risk cover.

The more Charter Ping An and its microinsurance cooperative partners extend risk cover on the greater the returns, he said.

Regulators acknowledge the Philippines is a top performer in the global endeavor to cast a financially inclusive net for its citizens as a weapon against poverty.

The BSP under then Gov. Rafael Carlos Buenaventura started the financial inclusion program by making it attractive for financial institutions to engage in micro lending which is now a P7-billion industry benefiting close to a million poor Filipinos with collective savings of some P3.7 billion thus far.

The business of extending contingent risk cover on poor but entrepreneurial Filipinos had been the next logical step in the financial inclusion program which aims to address the financial services needs of those who would only be ignored by the large banks and financial institutions.

In micro insurance, premium payments can be as small as one peso up to P19 a day and the benefit payout as large as P190,000 per policy.

These are arbitrary numbers believed suited to the contingent risk requirements of low-income Filipinos who may pay premium of P30 up to P570 a month, considered affordable rates by regulators.

By law, microinsurance products should be simple, with provisions clearly stated as to the face amount of risk cover, the benefits therein and the terms of the cover.

Commercial non-life insurers like Charter Ping An, mutual benefit associations, cooperatives, pre-need companies and health maintenance organizations or HMOs may engage in it with the permission of relevant authorities such as the Insurance Commission, the Securities and Exchange Commission, the Cooperatives Development Authority and the BSP.

A SENATE bill seeks to allow foreigners to own up to 40% of rural banks, pointing out the need for investments to strengthen financial institutions servicing the people in the countryside.

Sen. Edgardo J. Angara has filed Senate Bill (SB) 3089 that seeks to amend Republic Act (RA) 7353 or the Rural Act of 1992.

"Non-Filipino citizens may own, acquire, or purchase up to 40% of the voting stock of a rural bank," the bill read.

RA 7353 does not allow foreign ownership in rural banks.

"This policy deprives rural banks of foreign investment and effectively restricts their activity and services," said Mr. Anagara in his bill’s explanatory note.

"The bill is expected to stimulate more lively activity among rural banks by creating an environment that is beneficial to foreign investors, local banking patrons and the national economy," he added.

Amending RA 7353 is one of the priorities of the Senate banks, financial institutions and currencies committee chaired by Sen. Sergio R. Osmeña.

The House of Representatives has approved its own version, leaving it up to the Senate to act on the initiative.

Rural Bankers Association of the Philippines (RBAP) President Ian Eric S. Pama said his group supports the bill.

"RBAP fully supports the bill that will allow foreign equity in rural banks," he told BusinessWorld in a text message on Friday.

Mr. Pama said the bill’s enactment will "level the playing field with our commercial and thrift bank counterparts."

RA 8791 or the General Banking Act of 2000 allows commercial and thrift banks to have foreign investors.

"There will also be a transfer of technology and human resource development," Mr. Pama added, "and an increase in loanable funds to the countryside." -- Antonio Siegfrid O. Alegado

(The Philippine Star) Updated January 20, 2012 12:00 AM Comments (0)

MANILA, Philippines - The Department of Agriculture (DA) and Land Bank of the Philippines are forging an agreement to launch a P400-million loan program for rice farmers in four pilot provinces.

Agriculture Secretary Proceso J. Alcala and LBP president and CEO Gilda E. Pico are launching today the loan program as one of the credit components of the Aquino administration’s Food Staples Sufficiency Program (FSSP).

The DA and LBP are contributing P200 million each to come up with the initial P400 million loan program that will be initially implemented this 2012 dry season in four major rice-producing provinces of Isabela, Nueva Ecija, Iloilo and North Cotabato.

The loan program will initially serve farmers who are members of irrigators’ associations (IAs) of good standing.

A farmer can borrow a maximum of P42,000 per hectare per cropping, if they will plant hybrid rice, and P37,000 per hectare if they will produce inbred rice.

The initial P400 million will serve approximately 2,000 farmers per province, for a total of 8,000 farmers.

To qualify, IA members must at least own one hectare or up to five hectares of irrigated land which will be used as a “table collateral” for their loan.

A “table collateral” means that the bank merely holds on to the collateral, but does not register the collateral yet.

Other loan requirements include a farm plan and budget, purchase order from the National Food Authority or National Agribusiness Corporation, and a promissory note for the amount borrowed.

Applicants must have no existing palay production loan.

Borrowers will be charged 15 percent interest per annum, inclusive of crop insurance, payable within six months.

Declining interest will be applied to borrowers who establish good credit standing.

For the first two cropping cycles, the interest rate will be pegged at 15 percent which will be reduced by one percent every succeeding cycle, starting from the third cycle up to the sixth cropping cycle.

By Lawrence Agcaoili (The Philippine Star) Updated January 17, 2012 12:00 AM Comments (0)

MANILA, Philippines - New York-based Moody’s Investors Service said the decision of the Bangko Sentral ng Pilipinas (BSP) to implement a higher capitalization requirement for universal and commercial banks under the Basel III reforms starting 2014 would translate to higher credit rating for Philippine banks.

In a report, Moody’s analyst Simon Chen said the decision of the BSP to impose tighter capital adequacy standards beginning 2014 instead of the 2018 schedule set by the Bank for International Settlements (BIS) would be favorable to the credit rating of local banks.

“BSP’s stricter guidelines are a proactive measure to ensure that Philippine banks add to their loss absorption capacity and limit the deterioration of their credit profiles amid adverse external conditions,” Chen stressed.

Compared with the international standards, he pointed out that BSP’s Basel III guidelines are stricter as it imposes a higher minimum capital requirements of six percent common equity Tier 1 (CET1) ratio compared to 4.5 percent by the BIS, a Tier 1 ratio of 7.5 percent versus six percent, and a total capital ratio of 10 percent versus eight percent.

He added that the January 2014 deadline for the implementation of a 2.5 percent capital conservation buffer set by the BSP is faster tham the January 2019 deadline set by the BIS.

“Setting the local benchmark above the international standard reflects BSP’s consistent drive to create stronger banks and improve banks’ ability to overcome systemic risks,” the analyst said.

This early, Chen said Philippine banks are generally well capitalized by international standards as the average CET1 ratio of its rated Philippine banks’ stood at 12 percent, Tier 1 ratio at 13 percent, and total capital ratio at 16.9 percent as of September last year.

“Strong earnings and proactive capital management will help banks maintain capital levels well above the higher minimums,” Chen added.

The analyst pointed out that Metropolitan Bank and Trust Co., Development Bank of the Philippines, and Rizal Commercial Banking Corp. would not find the higher capital requirements onerous as their estimated CET1 ratios were well above the higher requirement at 11 percent as of end-September.

Furthermore, banks with aggressive growth plans including BDO Unibank Inc. and United Coconut Planers Bank would be most affected by the higher capital requirements as they have been growing their loan assets more rapidly than the industry’s average annual growth rate of 11 percent over the past three years.

“Higher capital requirements will force them to re-prioritize and scale down their growth plans. Against a backdrop of rising net interest margin pressures domestically, a likely consequence is the decline in their loan and income growth, and, in turn, their ability to generate capital internally,” Chen warned.

The rating agency said UCPB would be more affected as its estimated CET1 ratio is below six percent as over 80 percent of its Tier 1 capital is in capital notes issued as part of its rehabilitation plan.

“Unlike BDO, whose shares are actively traded on the local bourse, UCPB has no capital market access because it is under rehabilitation and the bulk of its shares are sequestered by the Philippine government,” he said.

Likewise, the decision of the BSP to impose tighter capitalization requirements starting 2014 would not affect the proposed merger of Philippine National Bank and Allied Banking Corp. - both owned by airline and tobacco magnate Lucio Tan - as their average CET 1 ratios stood above 12 percent as of end-September.

Bankers Association of the Philippines (BAP) president Aurelio Montinola III earlier said most banks operating in the country are ready to comply with the tighter capitalization requirement under the Basel III.

“Directionally, the implementation of tighter rules is a good move as it adheres moves together with enhancements of international standards,” he stressed.

Montinola, who is also president and chief executive officer of the Ayala-controlled Bank of the Philippine Islands (BPI), said the Philippines was also ahead in complying with the capitalization requirements under Basel II.

MONDAY, 09 JANUARY 2012 19:44 JUN VALLECERA / REPORTER

THERE is now a nationwide recognition framework for banks and other lending units that engage in micro loans, their efforts to be cited as exemplary in a field that began almost as an outreach program but which has now become a P7-billion industry benefiting more than a million borrowers.
The Paeng Awards, “a nationwide awards program recognizing outstanding microfinance institutions who, as a result of their pioneering initiatives, have been able to carry out exemplary work worthy of emulation, having been able to create positive changes in a community, sector or village that otherwise would not have occurred,” the Bangko Sentral ng Pilipinas (BSP) said in a statement released on Monday.

The annual event will be launched today, Tuesday, at the BSP’s Executive Business Center along Roxas Blvd. in Manila to honor Rafael Carlos B. Buenaventura, who started it all in 1999 when microfinance was more a buzzword than an actual program that would change the lives of its beneficiaries.

Buenaventura, “Paeng” to constituents and friends, served as BSP governor from 1999 to 2005, and was perhaps its most-loved chief executive.

He pursued the microfinance program early on in his term and pushed for its extensive adoption, recognizing this could be a powerful anti-poverty tool.

“This is the first major undertaking of the Rafael B. Buenaventura Microfinance Resource Center Foundation Inc., otherwise known as the RBB Foundation. The foundation deemed it appropriate to highlight the role of pioneers in the development of the microfinance industry,” the BSP said.

The different microfinance councils, banking associations and other foundation partners were to nominate microfinance institutions the winner of which will be announced late in November coinciding with the death anniversary of the former BSP governor.

At the launching, BSP Gov. Amando M. Tetangco Jr. will also sign a memorandum of agreement with Microfinance Data Sharing System or MiDAS, the first-ever ratings unit looking over the creditworthiness of the various microfinance units now in operation, among other functions.

MiDAs is an initiative of seven of the largest microfinance institutions whose aim is to address the rising problems of over-indebtedness, ensure client protection and maintain a high degree of quality of the loan portfolios of micro-finance institutions.

By Lawrence Agcaoili, The Philippine Star

Posted at 01/15/2012 4:13 PM | Updated as of 01/15/2012 4:13 PM

MANILA, Philippines - Bankers welcomed the plan of the Bangko Sentral ng Pilipinas (BSP) to impose tighter capitalization requirements ahead of schedule compared to international standards, but warned the program should be adopted with caution.

Aurelio Montinola III, president of the Bankers Association of the Philippines (BAP), said in an interview with reporters that most banks operating in the country are ready to comply with the tighter capitalization requirement under the Basel III global standards.

“Directionally, the implementation of tighter rules is a good move as it adheres moves together with enhancements of international standards,” he stressed.

Montinola, who is also president and chief executive officer of the Ayala-controlled Bank of the Philippine Islands (BPI), said the Philippines is also ahead in complying with the capitalization requirements under Basel II.

However, he pointed out that the plan should be implemented with prudence.

The capital adequacy ratio (CAR) is a ratio of a bank’s capital to its risk and the central bank tracks this indicator to ensure that banks have the capability to absorb a reasonable amount of loss and that they are complying with their statutory capital requirements.

Earlier, BSP Deputy Governor Nestor Espenilla Jr. said the central bank has issued a memorandum containing the implementation plans for Basel III standards on minimum capital requirement approved by the Monetary Board last Jan. 5.

The proposed roadmap contains the capital adequacy standards under Basel III that would be imposed on universal and commercial banks starting January 2014.

Espenilla said the move recognizes the present strong capital position of the banking industry while providing for a reasonable transition period.

“Now is the perfect time to introduce reforms. Our banks are doing pretty well and they could further shore up their capitalization,” he stressed.

According to him, the BSP has previously set its Basel implementation standard higher than the international norm with a capital adequacy ratio of 10 percent versus the international norm of eight percent.

By adopting the capital adequacy standards by January 2014, the BSP official said the regulator effectively accelerates the implementation of the Basel III accord for universal and commercial banks including their subsidiary banks, and quasi-banks.

Basel III introduces a complex package of reforms designed to improve the ability of bank capital to absorb losses, extend the coverage of financial risks, and have stronger firewalls against periods of stress.

The Basel Committee on Banking Supervision outlined a staggered implementation of Basel III stretching through the end of 2018 to allow internationally-active banks time to raise capital organically.

As part of the reforms, the bank regulator is set to implement a capital conservation buffer of 2.5 percent above the regulatory minimum while the common equity Tier 1 ratio would be set at a regulatory minimum of six percent higher than the international standard of 4.5 percent and the total Tier 1 ratio would be at 7.5 percent that is higher than the international treshhold of six percent.

The Monetary Board also approved further streamlining of the Tier 1 and Tier 2 limits and the handling of deductions against Common Equity Tier 1 that were not covered by BSP Circular 709 issued December 2010.

The circular that amended the existing risk-based capital adequacy framework by adopting the minimum conditions of Basel III for inclusion of non-common equity regulatory capital instruments in qualifying capital would be derecognized starting 2014.

The BSP would hold consultative discussions with players in the banking industry in the first quarter of the year after which the guidelines would be finalized in the third quarter.

This would pave the way for a one-year parallel run of the old and new guidelines in 2013 before taking into effect starting Jan. 1, 2014.

Montinola said the timetable would give banks enough time to comply with the tighter capitalization requirements.

Latest data showed that the CAR of the banking system remained healthy at 16.48 percent on a solo basis and 17.39 percent on a consolidated basis as of end-March last year from the revised end-December 2010 level of 15.99 percent and 16.93 percent despite the tensions in the Middle East and North African states as well as the sovereign debt crisis in Europe.

Data released by the BSP showed the CAR of universal and commercial banks improved to 16.42 percent as of end-March from 16.23 percent as of end-December 2010 on a solo basis and to 17.42 percent from 17.27 percent on a consolidated basis. Thrift banks improved to 16.11 percent from 12.62 percent rural banks improved to 18.86 percent from 18.2 percent; and cooperative banks increased to 16 percent from 17.13 percent.

By LEE C. CHIPONGIAN

January 14, 2012, 11:23pm

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has issued a memorandum incorporating Basel 3 principles on capital base that the BSP will adopt in two years’ time, ahead of schedule.

BSP Deputy Governor Nestor A. Espenilla Jr. in a memo letter said banks should begin preliminary assessments on the potential impact of the changes on capital base categorization under Basel 3.

The BSP issued Memorandum M-2012-002 in a resolution dated January 5 and released January 10 which incorporated the capital base changes as detailed in the existing regulation under Circular No. 538 of 2006.

Basel 3 standards, which the BSP will adopt as part of its risk-based adequacy framework for universal and commercial banks includes adoption of a new categorization of capital base such as tier 1 which will now be common equity tier 1 (CET1) and the elimination of tier 2 capital.

In the meantime the memo said the existing limits on eligible hybrid tier 1, lower tier and tier 2 capital will be removed while the BSP will also adopt the regulatory deductions in Basel 3 such as deductions taken out of CET1 capital in full as against the current practice of deducting the same from tier 1 and tier 2 on a 50:50 basis.

The minimum capital ratio for CET1 is six percent, 7.5 percent for tier 1, and 2.5 percent for the capital conservation buffer. The minimum capital adequacy ratio will still be 10 percent. Under Basel 3, the minimum capital CET1 required ratio is 4.5 percent while for tier 1 it is six percent. The CAR minimum is eight percent.

Espenilla said the draft of the Basel 3 implementing guidelines of the BSP will be circulated this quarter for banks’ comments and inputs. “The final guidelines are intended to be issued by the third quarter of 2012,” he said in the memo.

He added that this allow a one year parallel run that will allow banks to transition between Basel 2 and Basel 3. “The BSP will release further implementation plans and guidelines later (this year) covering other aspects of Basel 3.”

The new BSP guidelines, which will be released not later than April this year, will adopt Basel 3 standards on the areas of capital and liquidity in order to address “weaknesses brought to light by the global financial crisis,” according to a BSP report.