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July 21, 2024

Banks generally healthy but the small lenders and their outlook is fraught with risks

None of the country’s large lenders have fallen by the wayside owing for the most part to the adequacy of their capital and the quality of their assets as well as their management teams, the Bangko Sentral ng Pilipinas said.

But this does not mean the industry with collective assets worth P20.8 trillion is problem-free, particularly the less endowed among them in the rural banking sector.

Thus far, one rural lender had been ordered shut by the seven-man Monetary Board of the BSP and taken over by the Philippine Deposit Insurance Corporation, which compares favorably against 12 other small bank closures just last year alone.

Regulators point out the big banks posted sustained growth in deposits averaging nine percent at end-2021 to P16.2 trillion that enabled the industry to accelerate their lending activities nearly five percent more to P11.4 trillion, generating collective profits totaling P223.7 billion or 44 percent more than in 2020.

BSP Governor Benjamin E. Diokno previously acknowledged the short-term outlook for the banking system “remains relatively stable” based on their latest survey and that their assets, loans and deposits were to grow some more between 10 percent to 15 percent this year.

But some of his colleagues at the central bank admit this was not the case for small lenders as the rural banks whose outlook this year and the near term is “fraught with increased risks.”

The central bank officials noted the pandemic has made worse the notion that some rural banks are managed more like family businesses and for this reason are susceptible to the unforgiving nature of risk taking in the financial sector.

Such has happened, for instance, to AMA Rural Bank of Mandaluyong which was ordered closed in November 2019 and has remained so to this day.

Because its management has chosen to contest its takeover by regulators, servicing its insured depositor have been halted and effectively frozen until all legal issues have been resolved and satisfied.