51ST RBAP ANNUAL NATIONAL CONVENTION (2004)
Gary B. Teves
President and CEO
Land Bank of the Philippines
51 st RBAP Annual National Convention
Waterfront Hotel, Lahug, Cebu City
April 22, 2004
PDIC president Ric Tan, officers, past presidents and directors of the Rural Bankers Association of the Philippines led by President Danny Arcenas, distinguished guests and fellow bankers, good morning.
My presentation will revolve around three major questions: First, what have we at LANDBANK set out to do for rural banks since we began our strategic partnership in 1988? Second, what have we accomplished so far? And finally, what is our long-term vision for rural banks?
What we set out to do for rural banks
Recognizing the strong capabilities of rural banks, LANDBANK set out to accomplish the following:
- Enhance the role of countryside financial institutions in rural development. To ensure the efficient and sustainable flow of credit to the countryside, we vigorously pursued the accreditation of CFIs nationwide so that you would be our active partners in countryside lending.
- Create stronger and more viable countryside financial institutions.
- To help you better fulfill your role as catalysts of change, we worked at strengthening your capital structure and management capabilities through capital infusion as well as developmental and technical assistance.
- Develop role of CFIs as more efficient and effective channels of LANDBANK's products and services.
- To capitalize on your experience, we tapped you as conduits of LANDBANK's products and services to ensure they reach and benefit our intended borrowers.
- Improve performance through recognition and training programs.
- To help promote rural banking excellence, we recognized outstanding CFIs and conducted various training programs.
Where are we now?
So far, our efforts have yielded favorable results:
- First, LANDBANK has now accredited 469 rural banks or about 65 percent of the total rural banks, from 59 in 1988.
- Second, we strengthened the capital base of 287 CFIs through 14 capital infusion programs with a total investment of more than P700 million.
- Third, we have developed 12 credit programs for CFIs to address their short-term, medium-term, long-term and liquidity requirements. LANDBANK's aggregate loan releases to CFIs since 1988 have reached P65 billion. In 2003, total approved credit lines to CFIs reached P9.1 billion, 27 percent higher than the P7.2 billion in 2002. Total releases to 439 CFIs amounted to P7.7 billion benefiting more than 90,000 small farmers and fisherfolk.
- Fourth, in an effort to maximize rural banks as distribution channels of LANDBANK's products and services, we have tapped 34 rural banks so far as our remittance and collection agents for PVAO, Philhealth and SSS, and hope to increase this number soon.
- Fifth, we continued to conduct training programs in selected areas of operations.
- Sixth, we have held the annual recognition of outstanding CFIs for eight years now. Last year, we expanded the coverage by including special categories and awarding regional winners. This year, we plan to give a Hall of Fame award for the industry's very best.
Other current initiatives
We have also implemented these initiatives to improve our service to CFIs, enabling you to be even more responsive to your borrowers' needs.
First, we have recently approved the reduction of interest rate for the small farmers', fisherfolks' and SMEs' promissory notes of CFIs offering properties covered by tax declaration as collaterals. For small farmers and fisherfolk PNs, the interest rate is 10 percent which will be adjusted to 91-day T-bill + 2 percent subject to annual review . For SME PNs, the interest rate will be reduced from 91-day T-bill + three percent to 91-day T-bill + two percent. This will be implemented within this quarter.
Second, we have liberalized the computation of dividends on LANDBANK's capital infusion for CFIs. CFIs are given a six-month grace period after the scheduled date of payment before escalating the dividend rate to the next level.
Third, LANDBANK continues to offer the three modules of its Equity Infusion Program-development, business and risk recovery. This program aims to raise your capital base, reduce your debt burden and improve your long-term viability.
Fourth, under the BSP loan-to-equity conversion programs, we are studying the possibility of extending the maturity of preferred shares in CFIs to not more than ten years, giving you more time to redeem these shares. For the LBP-initiated programs, we are also studying the possibility of a five-year extension.
Lastly, LANDBANK has entered into a tie-up with a rural bank, an NGO and other private organizations for the implementation of the Integrated Cooperative Farming System (ICFS). Under this tie-up, farmers will be provided with financial, management and technical assistance as well as assured market. We hope to replicate this nationwide.
We'd also like to update you on the LBP Microfinance Program. We are in the process of selecting 10 pilot MFIs to participate in this program, which we developed to complement and support PCFC's efforts. This will enable us to reach out to more clients and accelerate credit delivery to the very poor, particularly in areas that have not yet been served.
On the proposed Apex Organization, we have agreed to defer implementation of this strategic tie-up so that we can determine the most appropriate set-up, as well as the services it should offer. We will keep you posted on future developments.
Despite challenging conditions, we'd also like to thank the rural banks that positively responded to our request to lower their pass-on rates to small farmers and fisherfolk. As of last count, 96 CFIs have already reduced their pass-on rates to around 18 to 22 percent per annum from 21 to 24 percent per annum. We hope that the rest of the CFIs will follow suit.
Where do we go from here?
After 50 years of operations, where do rural banks go from here? How do you prepare for the challenges that lie ahead and become the ideal community banks? Peter Drucker once said, "The best way to predict the future is to create it."
This is what we envision happening in the long term:
- Rural banks will remain the dominant financial institutions in their respective areas, covering 100 percent of cities and municipalities from its current 53 percent.
- With the growing competition for financial services and the entry of non-traditional players, we will have fewer but stronger and more stable rural banks with more extensive networks.
- Rural banks will continue to be the government's major partners in delivering credit to the agricultural sector as well as to micro, small and medium enterprises.
- Rural banks will have appropriate IT platforms and automated systems, allowing you to deliver faster and more efficient service to your clients.
- Lastly, we expect to see more rural banks entering into operating tie-ups with local and foreign banks because of your major competitive advantages. These include, among others, your vast distribution networks, minimal operating cost structures and your familiarity with local market.
For years, you have provided hope and accelerated progress. You have shown that you can build vibrant rural communities and raise the levels of efficiency and service, while maintaining your financial viability.
The challenge therefore is to keep working together, pooling your resources to continue raising the standards of rural banking excellence.
We hope to see more aggressive , responsive and creative community banks emerge -- driven primarily by their commitment to serve and empower the people in the countryside. The purpose of LANDBANK's and RBAP's partnership is to continue providing opportunities for these people and their communities.
Stephen Wise sa