Why the banking sector needs to drive greater economic inclusion


By: John Carlo Tria

IF THERE is one thing that the previous PNOY government was criticized for, it was the lack of economic inclusion, since unemployment and poverty rates remained the same (10% and 22%) in spite of the high growth figures (5-6%) and credit ratings seen under his watch.

Critics say that only a certain class of people is able to access credit and the financial sector enjoyed the benefits of low interest rates, enabling them to invest in property and buy cars. The almost 50% average increase in property prices in urban areas and the horrendous traffic attest to this.

Yet, as the economy’s growth is fueled by higher investments in manufacturing in the last three months, more jobs and the resulting incomes will increase. The higher inflation figures are an indication of this higher demand, as more people have money to buy things, outstripping supply and raising the price of these goods.

Inflation is always temporary, as evidenced by inflation charts over the last ten years. Our highest in the last decade was registered at about 4% during the PNOY years in 2014. More on this in another column.

Thus, as far as the financial sector goes, Finance Secretary Carlos Dominguez III was frank enough to stress the need to continuously introducing technological innovations to the country’s banking system to bring the “unbanked” Filipinos to the financial mainstream and effectively mobilize local capital for investments.

“Over 86 percent of Filipinos remain unbanked to this day. That is an intolerable ratio of the population excluded from the financial mainstream. We aim to reduce that number dramatically over the next few years. Continuous technological innovation in banking practices will help bring us closer to financial inclusion,” said Dominguez at the 20th anniversary celebration of Maybank Philippines held recently at Shangri-La at the Fort in Taguig City.

As the 6.9 percent GDP growth in the third quarter was fueled mainly by the expansion in the manufacturing sector, this may lead to even more growth in jobs and consumption, eventually bringing in more investments to cater to this growing demand.

This shift to investment-led growth, however, would require a more “robust and innovative” financial sector to fund new investment. Banks, therefore, will have to more aggressive to fund new things apart from housing and auto loans.

Moreover, it will have to increase its spreads by bringing in more depositors. Generally speaking, bank profit margins are this when the economy is good and interest rates are low. They will therefore have to increase the volume of transactions to make up for these low margins. Notice how branches are expanding.

Furthermore, unlike in previous years before, banks are now lending more personal and small business loans without collateral. Go to your bank and ask them. You’ll be surprised.

With this, the establishment of the OFW Bank by the government will push inclusion even further, and other government banks, notable the Development bank of the Philippines, have begun pushing inclusion through various instruments that allow easier access.

If you know people who own small banks, please encourage them to market themselves more effectively to reach out to new depositors. They will need the volume to stay strong in this competitive environment.

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