First of three parts
The Philippine banking system, no matter its stated goal of achieving widespread financial inclusion, remains an elitist system in which the greater number of Filipinos with the greatest need for financial services remains effectively excluded.
This was not an easy conclusion to reach, because the macroeconomic numbers seem innocent enough, wherein, for example, the system under which the P14.12- trillion industry operates won acclaim from some of the more reputable analysts for helping the $272-billion economy expand at a time when domestic- and external-sector headwinds hound the
Philippines no end.
In particular, the country’s high growth and overall stability were recognized by third-party credit watchers, and had been the main reason behind the country’s elevation to investment-grade status the past few years.
Parallel to this, the sovereign credit watchers remained optimistic of the country’s banking sector, with Moody’s Investors Service recognizing the banks as the only one of 69 other rated banking systems around the world with a positive- rating outlook.
But, just like the country’s inability to distribute its strong economic performance down to the grassroots, the banking sector has also been slow to transmit its position of strength to benefit the Filipino masses.
World Bank data show that the Philippines has the lowest gross domestic product (GDP) per capita compared to neighbors in the Asean—a development most glaringly seen in terms of the rate of bank penetration, where the country also comes in last.
As of 2014, the Philippines’s GDP per capita stood at $2,7651, lower than the $3475.1 of Indonesia, $5,779 of Thailand, $10,538.1 of Malaysia and $55,182.5 of Singapore.
The country’s low GDP per capita, essentially GDP divided by the total population, was recently cited by Fitch Ratings as proof of the economy’s many ills, as the aggregate has persistently been below that of similarly rated peers in recent years.
Mirroring the lag in the country’s GDP per capita is the Philippines’s level of banking penetration as
of end-2014.
The World Bank data also show in its Global Findex Database 2014, which was just published by the World Bank Development Research Group in April this year, that the Philippines also ranked last in banking penetration among the five original members of the Asean.
In the Philippines about 31 percent of all adults own a bank account. But this pales in comparison with the 36-percent bank-penetration rate in Indonesia, 78 percent in Thailand, 81 percent in Malaysia and 96 percent in Singapore.
Given the problematic level of bank penetration in the country, the Philippines is said to have missed out on the benefits that come with a high bank-penetration rate, benefits needed to sustain growth and the much-needed trickle-down impact on the masses.
“[Increasing the provision of banking services] can help to reduce poverty and support broad-based growth in various ways: by facilitating consumption smoothing in response to shocks; encouraging investment and entrepreneurship by micro, small and medium enterprises; and reducing the incidence of informal lending at punitively high interest rates,” International Monetary Fund (IMF) Resident Representative to the Philippines Shanaka Jayanath Peiris told the BusinessMirror.
“These are all highly relevant issues in the context of the Philippines,”
he added.
Similarly, Fitch Ratings said the level of bank penetration in any economy reflects the level of financial development in that country.
“Greater banking penetration can also help raise economic growth through more efficient allocation of capital from savers and investors to borrowers,” Fitch Ratings Director for Financial Institutions Elaine Koh told the BusinessMirror.
Daling Celso, 48, is a vendor at a local market of the City of San Fernando, Pampanga. Celso said she earns about P800 a day from her vegetable stand, and about 10 percent of her earnings go to her
savings, totaling more or less P2,500 a month. The cash savings, she said, are kept in a “secret place” in her room.
Celso told the BusinessMirror that, while she is aware that her savings are enough to open a bank account, she shies away from doing just that because she is in awe of the banks’ “complicated” processes and terminologies. She added that she never completed her elementary education, and does not understand the English language much.
Celso shared the sentiment of about a sixth, or 16.8 percent, of Filipinos who do not own a bank account, who claim that the main hindrance for them in opening a bank account, is the complete lack or limited knowledge of opening and managing a bank account.
Data provided by the Bangko Sentral ng Pilipinas (BSP) from its National Baseline Survey on Financial Inclusion (NBSFI) show other reasons cited by respondents, including the lack of a need for a bank account, at 16.9 percent. Another 11.2 percent claimed it is expensive to own a bank account, while 9.8 percent said the minimum balance the banks require is too high, even as another 7.6 percent said the bank is often too far away for them to bother maintaining an account.
The lack of a valid identification card, consistent with the banks’ mandate to
know their client, proved to be another deterrent and accounted for 4.6 percent for those who do not have an account. Puny interest rates on deposits accounted for 3.3 percent of those who turn their back on the banks, while another 2.5 percent cited the general lack of trust in banks as a whole.
But, of course, the mother of all reasons for those Filipinos who do not have deposit accounts is the sore lack of money, period. In particular, 65.1 percent of the respondents in the BSP-funded survey indicated the lack of funds as the main hindrance to opening an account.
While most of the unbanked population in the country come from the low-income group, the data show that a significant chunk of middle-class savers, or some 30 percent, also do not have bank accounts.
“Lack of enough money is still seen as the main barrier in having a bank account, and this is true even for those adults who have savings, including the middle class. People may still view that their money is not enough to open and maintain a deposit account,” BSP Governor Amando M. Tetangco Jr. told the BusinessMirror.
“There is a perception that having a bank account is for the well-off only,” he added.
Meanwhile, in terms of credit, the central bank governor also said Filipinos often hesitate to borrow from banks and other financial institutions.
In particular, of the total number of Filipinos who indicated that they have outstanding loans, 62 percent of them borrow from family, friends and relatives, while another 10 percent borrow from informal lenders.
The World Bank said in its most recent Global Findex report that less than 5 percent of all adults around the world reported having borrowed from private informal lenders. In the Philippines twice as much Filipinos borrowed money from the informal lenders, at 10 percent of those surveyed.
Other countries whose citizens would rather borrow money from usurious private lenders include Myanmar, Panama, South Africa and Saudi Arabia, where 10 percent or more of adult borrowers turn to the informal lenders.
Tetangco said the primary considerations local borrowers factor when taking a loan elsewhere include the interest rate, loan amount, period to pay for the loans, ease of loan application, reputation of the lender, amortization, collateral, fees and the processing time.
“However, when all these factors come into play, we know that Filipinos would consider the expediency or quickness of obtaining funds, despite higher cost of
borrowing. This is often the case during times of emergency, when there is ºno other way but to pawn an item or borrow from informal sources, such as family, friends, relatives or the 5-6 money lenders,” Tetangco said.
So-called bank entrenchment in the Philippines, more particularly in the rural patches of the country, is quite a challenge to policy-makers due to the country’s archipelagic makeup, a challenge not lost on the International Monetary Fund (IMF) and the Asian Development Bank (ADB).
Latest data from the central bank show that the number of bank branches in the country totals 10,456 as of end-March this year. Also, the number of automated teller machines (ATMs) serving consumers totals 16,068, also as of end-March this year.
Despite this, the BSP acknowledged that a “significant” percentage of areas in the country remains unbanked.
In particular, there are still 595 municipalities across the country’s enumerable islands still without access to banks and the financial services they provide. Nevertheless, this was an improvement from the 611 unbanked municipalities reported in 2012.
While current data represent an improvement from the situation decades earlier, several financial international organizations agree that the Philippines still needs to ramp up the effort to improve its bank-penetration rate.
“Increasing the provision of financial
services [including banking services] has been a key priority for the Philippine authorities. Progress has been made, but there is still much to do,” the IMF’s Peiris said.
“Although the Philippines has made some progress in promoting an inclusive financial system over the years, increasing access to financial services remains challenging,” the ADB also said in a recent report.
“The Philippines is a recognized leader in mobile banking, yet bank-penetration access is still low, particularly in remote areas. Similarly, the Philippine microfinance sector ranks as one of the top in the world, yet a large unmet demand for microfinance services still exists,” it added. To be continued