JEDDAH, 24 October — Much have been said about the prospect of establishing an OFW Bank, a bank owned, managed and patronized by overseas Filipinos. Pros and cons have been published in newspapers or circulated via the Internet in recent days. But it seems that the more answers are given, the more questions arise.

For example, does the proposed bank have suitable shareholders, adequate financial strength, a legal structure in line with its operational structure, and a management with sufficient expertise and integrity to operate the bank in a sound and prudent manner?

Who will be the incorporators or subscribers of the bank? Are they financially capable to meet the legal capital requirement? In what manner will the OFW Bank be managed? At what level of participation do ordinary OFWs have in the bank? Will all OFWs be obliged to patronize the bank? What safeguards (if any) may apply for the protection of the depositors?

Those are some of the endless questions that an ordinary OFW should know.

While the efforts of the OFW Bank’s proponents are highly appreciated, prudence dictates that the qualitative and quantitative factors that may be involved should be considered first before one should embark on such a grand project.

In the qualitative aspect, studies show that the level of savings of OFWs’ are considered to be poor. This is attributed largely due to low income and high expenses. Given the economic situation in the Philippines in the past, at present or even in the future, the banking industry may not face a bright prospect. The fragility of the economy continues to weaken the peso, thus continually reducing its purchasing power.

The unabated lawlessness in the country, worsened by a resurgent communist and Moro insurgency, continue to dampen investors’ (local and foreign) confidence, resulting in missed opportunities among Filipinos.

Local banks in the recent past have witnessed merger and consolidation to stay in the competition. Some of those local banks were acquired by foreign banks that mostly dominate the industry as they have vast resources and possess extraordinary skills and good culture to manage banks, not to mention their ‘graft free’ style of management. Most of the foreign banks’ managers shun away politics as opposed to the local managers (not all) who are easily persuaded by politics.

A recent example involved Equitable Bank, which managed to devour a bank of its own size (PCI Bank) in 1999 through the help of the state pension funds SSS and GSIS, reportedly on orders of then President Joseph Estrada. Estrada’s subsequent downfall on plunder charges almost dragged down the merged Equitable PCI Bank.

The other recent banking scandals include Urban Bank, which went bankrupt, and Land bank of the Philippines, which was involved in an imbroglio on money laundering. An exploding issue today involves President Gloria Arroyo’s publicist, Dante Ang, who is currently embroiled in a controversy over the acquisition of a thrift bank called BankWise.

Investors looking abroad

On the individual level, some local businessmen have divested and looked overseas for higher return. Although it was reported recently that there were rise in investments, however, most of those are in the form of portfolio investments, which are short term, rather than in equity investment. Massive capital flight have been witnessed in the recent past, but went unnoticed.

As for the quantitative factors, the incorporators of the proposed OFW Bank should consider which type of bank are they going to establish. As set by the Monetary Board of the Bangko Sentral ng Pilipinas (Central Bank), the capital requirements for the different types of banks are as follows:

Universal, 2.400 billion pesos; thrift banks with home office in Metro Manila, 325.0 million pesos; thrift banks with home office outside Metro Manila, 52.0 million pesos; rural banks with home office in Metro Manila, 26.0 million pesos; rural banks in the cities of Cebu and Davao, 13.0 million pesos; and rural banks in 1st, 2nd, 3rd class cities & 1st class municipalities, 6.5 million pesos.

Moreover, the Monetary Board states that the proposed bank may be organized with not less than five and not more than 15 incorporators.

In case there are more than 15 persons initially interested in organizing and investing in the proposed bank, the excess may be listed among the original subscribers in the articles of incorporation.

From the above table, it is obvious that the first 2 type of banks are not viable for OFWs as these will entail huge capitalization.

However, for the sake of argument, let us consider the commercial type of bank in our proposition as it apparently meets the needs of OFWs.

The 15 incorporators should have the financial capability to comply with the 25 percent subscribed authorized capital. In this assumption, they (incorporators) have to invest a whopping P10 million each.

Consider further that those OFW incorporators have the financial means with an average monthly savings of $2,000 per month in the past 15 years. That translates to about P19.08 millin, which is enough to pursue the project.

However, some questions may crop up. Are those OFW incorporators willing to invest their hard-earned savings without the need for outside sources? What about the remaining balance of the paid-up capitalization (i.e. P450 million)? How will it be raised?

Before we conclude, let us consider the following facts extracted from records of the Philippine Overseas Employment Agency (POEA).

Statistics shows that as of June 2002, OFW remittance reached $4.142 billion. Dividing that figure by 841,628, totals OFWs deployed by POEA as of the year 2000 (recent figures), we get an average annual remittance of $4,922 — which translates to a monthly average of $410 per average OFW. That amount may be considered enough to meet the monthly cost of living and educational expenses of family members of 4 or 5 with a meager 12 percent savings rate.

The average monthly savings rate of 1.5 percent projects savings of $6.15 monthly and $73.8 annually per OFW. Therefore, the total annual savings for OFW amounts to $62.112 million (equivalent P3.291 billion).

Based on the above given data, if all OFWs decide to invest 50 percent of their annual savings, (i.e. P1.646 billion) it appears that it can not fully meet the capital requirement considering the amount of savings (P1.645 billion) falls short of the required unsubscribed capital stock of P1.80 billion.

The requirement of the remaining balance of P450 million paid-up capitalization remains to be seen as well.

At present, the number of banks in the Philippines are more than enough to cater the needs of the OFWs. Worth mentioning also is the mushrooming of a convenient "door-to-door" remittance services in the Middle East, which have already established a market niche for the majority of average OFW remitters.

The competitive remittance fees of some banks in the Middle East especially in Saudi Arabia is another factor that has to be considered.

Lastly, the same lingering question has to be asked. Is it viable to put up an OFW bank? Think of it my fellow OFWs?

— The author works with Saudi-French Bank