THE PHILIPPINE rural banking industry’s growth will be driven by its digitalization as more players embrace the neobank model, an industry head said.
“Growth will be driven mainly by neobanks — rural banks that operate like digital banks but are not actually digital banks. [They have] very similar business models. They have very strong growths,” Rural Banking Association of the Philippines (RBAP) Executive Director Rafael Francisco D. Amparo told BusinessWorld.
“It’s the way forward. Everyone needs digital.”
Mr. Amparo said some foreign players have entered the Philippine market via the rural banking industry to operate as neobanks amid the Bangko Sentral ng Pilipinas’ (BSP) ongoing moratorium on the grant of digital banking licenses, which will be lifted by next month.
Similar to digital banks, neobanks offer banking services via online platforms and electronic channels. However, the BSP has separate licensing and prudential requirements for digital banks as they are treated as complex banks, like universal and commercial lenders.
Meanwhile, existing thrift, rural, and cooperative banks that primarily offer financial products and services processed via digital channels can do so under an Advanced Electronic Payments and Financial Services license.
In 2021, the BSP capped the number of digital banking licenses at six as it sought to boost its regulatory capacity and supervision of the sector. It will lift the moratorium on the grant of new licenses on Jan. 1 and will allow four more digital banks to operate in the country, which would bring the maximum number to 10.
Mr. Amparo said the rural banking industry has been performing well.
“If we look at the performance of the rural banking industry in the last three years, we’re not in trouble. I think we have the most potential for growth in terms of capital, income, and loans,” he said.
“When I started in the BSP in 1998, there were more than 800 rural banks. There are less than 400 now. Consolidation has been going on for the last 30 years. It’s nothing new.”
The BSP has been encouraging rural banks to consolidate as part of its Rural Bank Strengthening Program (RBSP) that was launched in 2022.
The RBSP features five time-bound tracks that aim to strengthen the capital position of rural banks: merger/consolidation, acquisition/third-party investment, voluntary exit/upgrade of banking license, capital build-up program, and supervisory intervention.
In September 2022, the BSP raised the minimum capital requirement for rural banks with a head office and as many as five branches to P50 million, while those with six to 10 branches must have a minimum capital of P120 million. Those with more than 10 branches must have a capital of at least P200 million. Rural banks have until 2027 to comply with the new rules.
The Philippine rural banking sector’s combined net income was at P8.34 billion at end-September, up from P6.29 billion a year prior, latest BSP data showed.
Total assets stood at P430.396 billion at end-September, rising from P368.71 billion in the previous year.
Meanwhile, the sector’s total capital accounts stood at P77.92 billion as of September, with capital stock at P46.67 billion, central bank data showed.
Its solo capital adequacy ratio was at 17.74% as of September, while the total capital accounts to total assets ratio stood at 18.16%. — Aaron Michael C. Sy