JEDDAH, 8 October –With a current capital of close to 10 million pesos, plus an influx of new commitment from groups of Filipinos in Switzerland, the OFW International Holdings is inching closer to establishing an OFW Bank, its proponents say.
Alan Exevea, spokesman of OFW International Holdings, stressed the viability of the plan amid fears that it would not succeed without the Philippine government’s backing.
"We have supporters in the US and the Middle East. Groups of OFWs in the Netherlands, Singapore, and Spain have also expressed their intention to contribute, and have asked representatives of OFW Holdings to present the OFW Bank business plan to them," Exevea told Arab News.
He lamented that Overseas Filipino Workers are sick and tired of lip service, hence, they need to make a move.
"We need to organize and now is the time. We have the numbers and we have the financial capacity. To leverage our position with the government and the Philippine society as whole is not a show of power but to show that we are already losing hope in waiting for our government’s support and assistance," he said.
Exevea, a finance specialist based in Jeddah, was particularly reacting to a statement made by another OFW investment specialist based in Riyadh, that the success of an OFW Bank hinged on the government’s support.
Romy Cahucom, president of the Investors Society (Ofwins), told a forum in Alkhobar late last month that unless the OFW Bank is mandated to become the official depository of government funds, it may not survive amid stiff competition by the long-established banks operating in the Philippines.
Exevea, the treasury manager of Savola, noted that of the more than 40 commercial banks and hundreds of rural and thrift banks operating in the Philippines today, only Land Bank and Development Bank of the Philippines are considered depository banks of the government.
"More than 50 percent of commercial banks and hundreds of thrift/rural banks showed positive incomes despite not being considered as depository banks of the government, and despite having an unstable and not-so-rosy economic environment," he argued, citing current statistics from the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted on its website www.bsp.gov.ph.
In a separate interview, Jimmy Leonida, a member of the board of the OFW Holdings also refuted Cahucom’s statement that establishing an OFW Bank "is not a sound investment" albeit " a worthy and legitimate cause..."
Leonida pointed out that Cahucom’s statement is contrary to the findings of the Asian Institute of Management published in the Business World on Feb. 22-23, 2002.
In the AIM study, Professor Romulo Neri said that "the current high interest rate problem will be solved only if the local financial sector is fully liberalized –meaning more banks and financial institutions will be allowed to operate in the country."
"This is because new banks entering the local industry are not burdened by bad loans and therefore can afford to lend at lower interest rates... The new entrants will not be carrying the burden of Non-performing Loans (NPLs) and thus shall be able to be more competitive and provide lower lending rates," Neri added.
In January 2001, the BSP lifted the moratorium in giving bank licenses provided these banks to be formed will engage in micro-lending and that they will comply with the capital requirements for rural and thrift banks.
"If it is not profitable to open and operate smaller banks such as rural and thrift banks, why would BSP lift the moratorium in giving bank licenses for these types of banks?
If there’s no opportunity for smaller banks, why would BSP approve the application of two new rural banks – Opportunity Bank and Vision Bank – and at least three more, knowing fully well that they do not stand a chance against existing big commercial banks?" asked Leonida.
He explained that the plan of the OFW Holdings to put up the OFW Bank will start with the establishment of the OFW Micro-finance Bank. "This will serve as our strategy and entry level in the banking industry. By 2006, we hope to convert this into a bigger bank such as a commercial bank."
Bank mergers
Cahucom’s statement that "more than 40 banks now existing in the Philippines, all of whom are facing tremendous pressure to merge with each other just to survive" is contrary to facts, asserted Leonida, who works with Saudia.
"The merger of Metrobank and Solid Bank was, basically, to make sure that Metrobank stays on top among all commercial banks. It was not a matter of survival per se. The controlling shares of Lopez and Gokongwei (not only Lopez) in PCIB were sold primarily because there was a good opportunity to profit by selling their combined shares. It was a business decision to capitalize on the opportunity to earn billions of pesos, and not because of the need to merge and survive, " reiterated Leonida.
"A question pops up to mind: how come Gokongwei did not sell his Robinsons Bank, which is a thrift bank, and therefore smaller than commercial banks, if there’s no good opportunity in banking?" he asked.
Norman Gacula, the chief operating officer of the OFW Holdings based in Manila, supported Leonida’s statement citing reports from the BSP. "The banking industry was the most resilient to economic downturns. The banks were able to produce increasing profits versus the same period last year despite being saddled by an 18 percent average NPL’s and a weak economic environment," he said.
The net income of all banks rose to 5.960 billion pesos from 4.591 billion or an increase of 29.82 percent in the first quarter of 2002 versus the same quarter of last year. Commercial banks’ net income rose to 5.576 from 4.585 of a 21.81 percent increase.
Rural banks had a moderate increase of 0.301 from 0.279 or an increase of 7.89 percent, while thrift banks had net income of 0.083 from 0.273 or 130.40 percent increase.
Treasury bills, time deposits
In his Alkhobar discourse, Cahucom also suggested that OFWs "just invest in treasury bills, treasury bonds, time deposits and legitimate funds where they are assured of safe and high return of investments."
Gacula has a different idea regarding this matter. He cited that as of Sept. 30, the yield for Treasury Bill is 5.22 percent per annum, time deposits ranges from 4 to 5 percent gross for a deposit of P100,000, trust and mutual funds between 6 and 8 percent.
"Assuming that the interest rate for all these investment vehicles is 8 percent per annum, an investment of 500,000 pesos (which is very high for an average OFW) will yield Php40,000 per annum in interest income, the monthly yield is Php3,333.33. This is almost 50 percent lower than the median annual family income of Php88,782 or Php7,398.50 a month in 2000," Gacula pointed out.
"Can an OFW who settles for good in the Philippine live comfortably with his family for an annual income of Php40,000? Even if he has an investment of one million pesos, it will only yield Php80,000 annually (which is still lower than the median annual family income).Can he support his family with this income?" he asked.
Meanwhile, Leonida said that the Php40,000 annual income is a gross amount for an investment of Php500,000. This meager amount will be further decimated if you consider the average inflation rate in the Philippines last year, which was 2.9 percent! (Php40,000 less 2.9 percent is Php38,840 a year or Php3,236.66 a month.) Then there is tax.
"While investing in treasury bills, bonds, mutual funds, etc, is safe, in reality it doesn’t give high return on investment," he said.
Exevea’s own comment on the Treasury bills sor time deposits issue was this: "I will put my money in low-risk, low-yielding instruments like Treasury bonds, bills, etc. if I am just thinking of safekeeping and if I’m only planning to keep it intact in the next 5-10 years without analyzing all factors affecting the cost of money."
Many opportunities
As banks have so many opportunities to generate income ("incomes are derived through loans, credit card operations, loan syndications, trust fund management, foreign exchange, remittances, services, etc."), it follows that investing in an OFW Bank is a viable alternative for OFWs, Leonida stressed
"The remittance business, for instance, which is an $8-billion market, is making the operation of RCBC, Equitable-PCIB, BPI and Metrobank very profitable. The Philippine National Bank’s remittance business is the only profit-making division that is keeping the bank afloat.
"Other commercial banks including DBP and Land Bank are now gearing up for improved and aggressive marketing strategy to tap the remittance market," Leonida said.
"All things being equal in terms of delivery and rates, and assuming that the OFW Bank is already operating its remittance business, which bank do you think would be patronized by OFWs?" he asked.
