Guerilla Investing is back! Thank you for patiently waiting for my new post, dear reader. I'd like to take a break first from my posting on the waves of Philippine business.
While this piece of news had broken out last week, I think that it will remain a strong reminder for us in the present time... and in the future. I'm talking about a series of bank holidays declared by a number of rural banks.
And I don't mean holiday as some sort of national holiday. I'm referring to a holiday that refers to your money bidding you a (potentially) eternal holiday from your wallet/passbook. Depositors beware.
Last December 10, I read in the Inquirer that two rural banks - Philippine Countryside Rural Bank Inc. (PCRBI) and its sister company, Pilipino Rural Bank Inc. (PRBI) declared a bank holiday. The two banks are under the Legacy group (I wonder what legacy they want to leave the depositors, hmmm?). What's also worry-some is that the Bankgo Sentral ng Pilipinas found that the Legacy group also had a slew of undercapitalized banks namely -
Rural Bank of San Jose (Batangas) Inc.,
Rural Bank of Carmen (Cebu) Inc.,
Rural Bank of Calatagan (Batangas) Inc. (now Dynamic Rural Bank),
Rural Bank of DARBCI Inc.,
Rural Bank of Kananga (Leyte) Inc. (now First Interstate Rural Bank), and
Rural Bank of Bisayas Minglanilla (now Bank of East Asia)
According to the same news article, "the rural banks under the Legacy group have a capital deficiency of P2.5 billion that ranged from P1.4 million for Dynamic Bank to P983.5 million for the Rural Bank of Parañaque."
Okay, what's the punchline here?
Rural banks, at least from my experience, are the ones who offer double-your-money-in-five-years time deposit placements. But to just define it that way would obviously highlight my bias. Let's take a brief view of what the Philippine banking system looks like, based on how banks are classified -
Universal Banks
Commercial Banks
Thrift Banks
Rural Bank / Cooperatives
Primarily, the distinction among them are what they can do, how much capitalization is required, and what loan/deposit products they can sell. For more details, visit the online encyclopedia Wikipedia. Here's the link.
Using my Neanderthal internet skills, I could not find anything substantial about the banking system history in the BSP website. Maybe you'd have better luck?
As of December 13, 7 of the 10 banks under the Legacy group had already been placed under BSP receivership-
1. Philippine Countryside Rural Bank (PCRB) with branches in Mandaue City, Lapu-Lapu City and Liloan in Cebu,
2. Bank of East Asia based in Minglanilla, Cebu
3. First Interstate Bank in Tacloban City.
4. Rural Bank of Paranaque
5. Rural Bank of Bais in Negros Oriental
6. Pilipino Rural Bank (with branches in Mandaue and Argao in Cebu and Tagbilaran City in Bohol)
7. Rural Bank of San Jose in Batangas.
What is receivership? According to Investopedia, "A type of bankruptcy a company enters when a receiver is appointed by bankruptcy courts or creditors to run the company." In this case, the PDIC is the receiver.
The RBAP or the Rural Bankers Association of the Philippines issued a statement that amidst these problems were isolated and unique to few and that most rural banks “continue to outperform the entire Philippine Baking System.”
Okay. If you say so.
Why do I have a bit of sarcasm there?
Well, last May, a person came to me asking me if he should make a placement with Bank of Paranaque. He said that the bank was offering him 20% p.a., which meant that your money would be doubled in just five years. Naturally I was skeptical.
He said that the bank representative, who I am sure had this person's interests in mind (ho-hum) said, "If you want, just deposit 250,000 only. This is almost risk free as the PDIC insures your deposit up to that amount."
This guy also defended the rural bank since "hindi ito scam, kasi kasama siya sa RBAP." (This isn't a scam since the bank is a member of the RBAP.")
Go figure.
I hope he didn't commit to the investment since he didn't want conservative investments like pension or regular boring interest rates time deposits.
If you are in the same shoes as this person, and somebody is offering you a product like this, regardless of the institution, ask yourself this -
We are in the midst of a global recession. How and where will the institution get a return of 20% YEARLY?
Next question to ask yourself is, if Wall Street was able to put a triple A rating on subprime mortgage backed securities, what else is there that can't be manipulated? I smell a ticking time bomb in the local banking sector if some banks out there continue to sell their double your money in 5 years time deposit products.
What tips can I offer you? Check the t-bills rate. Check the performance of the real estate sector. Look at the stock market. Do you see offers of 20% yields?
Didn't think so.
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