Cebu Daily News / Opinion

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Editorial : Painful legacy for rural banks Cebu Daily News Posted date: December 13, 2008 The effects of this week's temporary closure of the Cebu branches of the Philippine Countryside Rural Bank Inc. (PCRBI) and the Pilipino Rural Bank Inc. (PRBI) on the rural banking sector may either be likened to the common cold or a bush fire, depending on how the Bangko Sentral ng Pilipinas (BSP) handles the situation. Following on the heels of PCRBI and PRBI's closures, depositors of the Rural Bank of Subangdaku (RBS), were besieged with anxious depositors lining up to withdraw their cash, some as high as P100,000. Unlike the two rural banks, however—and maybe because of them—the RBS management moved quickly to assure depositors that their financial status remains stable even if their branch in Dumaguete was temporarily closed. How their clients will respond to this may be known in a couple of days. The RBS reassurance comes amid a late explanation by the management of the two other Legacy-affiliated banks by their Cebu lawyer, who pointed to heavy withdrawals by clients who were already jittery by reports of the global recession, as a factor. But that's like trying to put out a fire long after the blaze has either gone out of control or already consumed most of the house. The fiscal status of PCRBI and PRBI had long been questionable after it was audited last year by the BSP and found to be undercapitalized, but the Legacy management chose to stick it out, conduct more promotions and engage in a court battle to prevent a takeover. (The Supreme Court recently lifted a restraining order issued against the BSP). Instead of seeking help, the Legacy rural banks resorted to promotion gimmicks and drawing in more clients with “double-your-money” schemes for five-year deposits and offering I-phones and computer laptops for P250,000 deposits parked in the bank. The management didn't anticipate the heavier volume of withdrawals in the Christmas season coupled with the global recession. Instead of facing clients, they shut the door. With the intervention of the BSP, the bank management together with the Philippine Deposit Insurance Corp. (PDIC) is taking the bitter pill of receivership. Nobody wants the fear to infect other depositors in other rural banks. The unfortunate depositors and the public in general can only hope to ride out the crisis. The question is whether the life savings and personal investments of rural bank depositors remain intact after the smoke clears, and how soon the victims can get their money back.