Rural banks top commercial banks in 2009 profits

Sometimes small is better. Despite their modest resources, the rural banking sector posted higher aggregate profits in 2009 than their richer commercial banking cousins. Bangko Sentral ng Pilipinas (BSP) Gov. Amando M. Tetangco Jr. pointed out that the consolidated return on equity (ROE) of the rural banking sector in 2009 reached 12.12 centavos for every one peso of equity investment, while the commercial banking sector's was 11.38 centavos per peso of equity.  Aside from being more profitable, Tetangco said thrift, rural, and cooperative banks are well-equipped to comply with stricter regulations in meeting the industry's capital requirements. The governor spoke before participants of the 57th Annual National Convention and Corporate Meeting of the Rural Bankers Association of the Philippines (RBAP) Tuesday. He said that the sector was on the right track based on 2009 consolidated figures. "As it is, the rural banking sector… as a whole… is already on the right track, as far as operational bottom line is concerned. I base this on 2009 consolidated figures. In fact, even with the global financial crisis and isolated closures of some banks," Tetangco stressed. Total assets of the rural banking sector rose to P157.4 billion last year from P146 billion in 2008, while gross total loan portfolio amounted to more than P98 billion and deposits stood at over P105 billion.    "By any measure, these are respectable figures posted at a time when the global financial crisis triggered the most serious world recession since World War II." Tetangco said. "To the BSP, all these represent concrete evidence that our rural banks are indeed ready to take on a more strategic and competitive place in the Philippine financial system," he added.   Last month, the BSP's Monetary Board approved the Revised Risk-Based Capital Adequacy Framework for thrift, rural, and cooperative banks that would take effect starting Jan. 1, 2012 instead of 2011. The revised framework would subject stand-alone thrift, rural, and cooperative banks that are not subsidiaries of universal and commercial banks to higher capital adequacy standards under the Basel 1.5 framework. The BSP decided to adopt the Basel 1.5 regulations on thrift, rural, and cooperative banks as opposed to the Basel 2 rules that covered commercial and universal banks including subsidiaries in 2006. The new regulation requires thrift, rural, and cooperative banks to set aside funds for operational risks such as fraud, system failures, and natural calamities. The upgraded risk-based capital adequacy framework for these banks would be implemented to make sure that risk management systems are in place. On the credit side, the foreign currency-denominated credit exposures to the national government and the BSP would now carry a 100-percent weighted risk based on the country's current sovereign rating of BB- from the existing zero-risk weight while peso-denominated exposures would continue to be zero-risk weighted.  This would be phased in over a three-year period, wherein the risk weighting would be implemented equally until 2014. The framework also stipulates the assignment of a 150-percent risk weight to real and other properties owned or acquired, also known as ROPOA, that would be implemented over a three-year period until 2014 in line with the BSP's thrust to reduce the level of non-performing assets to strengthen the overall asset quality of the banking system. The BSP said the revised framework entails a capital charge of 12 percent of the average positive annual gross income during the last three years of a bank, instead of the original proposal of 15 percent for the capital requirement for operational risk. The central bank pointed out that the capital requirement for operational risk would be implemented on a staggered basis over a three-year period with 4 percent starting 2012, 8 percent starting 2013, and to 12 percent starting 2014. Thrift, rural, and cooperative banks would need to disclose components of qualifying capital; capital requirements for credit, market, and operational risks; and total and tier 1 capital adequacy ratios. —OMG, GMANews.TV