Rural banks are vulnerable in an RP sub-prime crisis

Gloria pictured a stable financial environment for the Philippines yesterday (there was a Philippine economic briefing yesterday at Shangri-La Makati), even saying that the government is on top of the situation. Bangko Sentral ng Pilipinas backed her up, saying that we have enough reserves to help ailing banks and financial institutions in the event of a full-blown financial crisis. Former senatoriable and now NEDA Chief Ralph Recto was quick on his feet, saying that the reason why the government remains confident is the fact that it has collected billions of billions of revenue from VAT, which is being cursed right now by consumers.

What we failed to recognize is this---Recto failed to say that we are just experiencing the beginning of woes, so to speak, and we're still not out of the woods, no, not yet. He failed to say that the economic slowdown would affect government revenues and yes, even the dollar reserves. Up to what extent will government extend its hand to help ailing banks, insurance firms and financial institutions? 

A slowdown would surely affect VAT collections and taxes. Firms have to raise their commodities prices more to cope up but what will the impact be for the people? Hey, consumers have been experiencing the effects of the global financial crisis since the start of the year and it's not true to say that we are really insulated.

What I fear the most are the rural banks. Rural banks have billions of pesos worth of mortgages that are still in their books. How would they possibly free these mortgages is anybody's guess at this point. The sheer enormity of these mortgages could eventually paralyze the entire rural economy and would definitely affect even the national economy.

The BSP should look into the rural banking sector and try to implement measures that would keep these banks afloat. Bear in mind that thousands of home mortgages have been absorbed by these rural banks which eventually would be affected by an economic slowdown. If these rural banks fail to transform these mortgages into financial instruments, what would happen to our economy? It would surely impact on the entire economic superstructure!

That explains why Speaker Nograles is really hell-bent on allowing foreigners to buy Philippine real estate because the Speaker knows that we have a ticking time bomb, what with these billions pesos worth of bad mortgage accounts being mismanaged by some rural banks.

The BSP should look into this immediately and avert a possible crisis in the provinces. Billions worth of investments are exposed and it would not be fair if government would absorb these losses via the PDIC (Philippine Deposit Insurance Corporation).