Loren: Scrutinize DOSRI loans of troubled rural banks

Senator Loren Legarda urged government yesterday to prosecute to the fullest extent of the law the owners and officers of rural banks who may have mismanaged the money entrusted to them by their depositors.

"Government must make sure that executives and directors of these rural banks did not take advantage of their power and authority to benefit themselves through DOSRI loans," said Loren.

DOSRI loans are accommodations and guarantees provided by banks to their directors, officers, stockholders and their related interests.

Loren made the statement in the face of several rural banks closing shop or declaring bank holidays, the latest being a chain of rural banks operating in Cebu.

"The PDIC (Philippine Deposit Insurance Corp.) is there to ensure that depositors get back their money. But government must also address the problem of small entrepreneurs and farmers not having access to micro-financing if more rural banks fold up," she said.

Loren said that government must step in to ensure that financial lifelines are extended to farmers and entrepreneurs adversely affected by lack of access to financing.

She said that micro-financing has become doubly important in the face of the economic slowdown as more people are encouraged to start small enterprises.

"Many medium, small and micro enterprises (MSMEs) will grind to a halt without access to capital. One way or another, MSMEs must get funding either from banks, non-governmental organizations or from government itself," she said.

The DOSRI exposure of banks is limited by Section 36 of the General Banking Law of 2000 to an amount equivalent to the borrowers' unencumbered deposits and the book value of paid-in contribution in the bank.

The unsecured loans and other DOSRI credit accommodations and guarantees must not exceed 30 percent of a bank's overall exposure.

Loren said that monetary authorities and government prosecutors must prop people's confidence on the banking system by ensuring full compliance by banks on banking laws.

She cited the big economic role played by properly managed rural banks, citing a report by Tsukasa Maekawa of the Asian Development Bank that rural banks are emerging as a major player in microfinance in the Philippines.

Commercial banks rarely lend to small entrepreneurs because they lack acceptable collateral and because of the high transaction costs of processing small loans.

Loren is the chair of the Senate agriculture, food, social justice and rural development committees. She used to chair the Senate economic affairs committee.

"Small banks play a big role in our economy, more so during difficult times like these when more and more Filipinos facing bleak job prospects must have access to micro-financing to be able to start small enterprises," she explained.

In the face of the global economic downturn, the Philippines must go back to the basics by encouraging small enterprises that generate jobs in rural communities, boost trade activities in the grassroots level and empower the unemployed, she stressed.