The Monetary Board has approved the revised branching guidelines to enhance competition in the banking system and maximize the delivery of financial services especially in underserved areas. In line with BSP’s policy thrust to create an enabling environment which allows banks a greater scope for their microfinance operations and a wider reach for their services, these guidelines further provide a significant boost for the microfinance industry.
Under the said regulations, qualified microfinance oriented banks and microfinance oriented branches of regular banks may establish branches anywhere in the Philippines. These banks may set up branches even in the areas that the BSP has identified as being adequately served by existing banking offices such as the cities of Makati, Mandaluyong, Manila, Paranaque, Pasay, Pasig and Quezon, and the Municipality of San Juan. Microfinance oriented banks or microfinance oriented branches of regular banks may set up branches in the NCR after it has put up the minimum capital required for a thrift bank with a head office in the NCR (PhP 325 Million). This revision reflects the industry demand of serving the microfinancial needs of the entrepreneurial poor in cities and urban centers who have been unserved and underserved by microfinance institutions.
Emphasizing the importance of soundness and the capacity of the bank, the revised guidelines also state that qualified rural or cooperative rural banks with unimpaired capital accounts of at least PhP 10 million but less than PhP 50 million may establish a branch anywhere within two hours normal travel time from the head office. In addition, a rural or cooperative rural bank with unimpaired capital accounts of at least PhP 50 million but less than PhP 100 million may establish branches in any island group (Luzon, Visayas, Mindanao) where the head office is located, except in the NCR. A large rural bank with at least PhP 100 million unimpaired capital accounts may establish branches anywhere in the Philippines except in the NCR.
Another significant benefit for microfinance is the provision which allows for the servicing of deposits outside the bank premises. Under the new guidelines, as long as the capital requirements are met, the safety and soundness of the bank is ensured, and that the area of operation is within one hour normal travel time to the head office or branch, the bank may be authorized to solicit and accept deposits outside their banking premises. This is once again a big advantage for microfinance institutions whose loan officers typically go out into the towns and cities to service their clients.
The guidelines have maintained the provisions which ensure that the banks that are allowed to expand are well managed and sound institutions. Some of these provisions are the compliance to the minimum capital requirements, risk based capital adequacy ratio of not lower than 12%, CAMELS composite rating of at least “3” with Management score of at least “3”, appropriate risk managements system in place and no major supervisory concerns on safety and soundness. For microfinance oriented banks and microfinance oriented branches of regular banks, additional requirements were set in place to ensure that the branches are able and fit to provide sustainable microfinance operations. Such requirements include a Manual of Operation on microfinance, an adequate loan tracking system, adequate experience in microfinance by staff and management as well as the assurance that at least 70% of the deposits generated by the branch shall be lent out for microfinance. Microfinance oriented banks and microfinance oriented branches of regular banks also have a lower branch processing fee of only PhP 5,000 compared to the other banks.
At present, there are 195 banks with microfinance operations in the country servicing over 600,000 microentrepreneurs. The new guidelines will definitely enable these existing banks to further increase the depth and breadth of their outreach and better serve more and more entrepreneurial poor both in the rural and urban areas. With around 96% of the total industries in the country considered as microenterprises, there is a huge demand for financial services that needs to be serviced. This step towards the liberalization of the branching requirements aims to see greater access to financial services, healthier competition in the banking system which will lead to lower costs and a more flexible yet stronger banking system.