A key part of my thesis about the slow development of the Philippine economy since the 1950s is the poor and deteriorating performance of the agricultural sector. Until the start of the government effort to develop an industrial sector, Philippine agriculture had pride of place in the national economic scheme. Then all the bad things began to happen.
One of the bad things that happened to the Philippine agriculture was the increasing neglect of the rural banking system by a government focused on developing a banking system centered on commercial (and, later, universal) banks. Established in 1952, the rural banking system was intended by the economic policymakers to lead the way to national economic prosperity. But, for reasons that have since been fully documented—especially mismanagement by the mostly-family owners, inadequate government support and flawed regulatory enactments—the rural banking system gradually lost its luster and progressively degenerated into the collection of weakly managed, financially unstable institutions that it is today.
Over the years the government, led by the monetary authorities, have put into place programs intended to stop the systemic decline and to invigorate the remaining rural banks. But, truth to tell, the programs exhibited half-heartedness and were neither forcefully nor sustainedly implemented.
And so the decline has continued. At least one-third of the number of units that were at the rural banking system’s peak have since fallen by the wayside. Today, one regularly sees newspaper announcements made by PDIC (Philippine Deposit Insurance Corporation) about a rural-bank closure. That the rural banks are dying like flies is not far from the truth.
Enter another government program for the invigoration of the rural banking system. This time it is a Consolidated Program for Rural Banks (CPRB). The joint proponents of CPRB are the Bangko Sentral ng Pilipinas—for obvious reasons—PDIC and the Land Bank of the Philippines (LBP). The press release issued after the signing of a Memorandum of Agreement for CPRB stated that the program “aims to provide incentives to encourage mergers and consolidations among the 572 rural banks operating in this country, enabling them to improve their financial strength, enhance viability, strengthen management and governance and expand market reach.”
The stated aims of the latest program are all motherhood-type phrases. “Improve financial strength, enhance viability, strengthen management and governance and expand market reach” – these have all been uttered before.
Making CPRB work where predecessors have failed is one of the prime tasks of the administration of new BSP governor Nestor Espenilla Jr. He must ensure the successful implementation of this latest effort to strengthen the rural banking system. In this connection Mr. Espenilla may remind himself of the old saying “You can take a horse to water but you may not be able to make it drink.” He may find that forceful implementation of CPRB will require the banging of heads—figuratively, of course—of unworthy members of rural bank managements.
The commercial banks cannot yet adequately service this country’s 1,442 municipalities. For this and other reasons the rural banks are needed. CPRB must be made to work.
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