Postbank Focuses on Countryside Banking "A Shift Towards Relevance"

A NOTE FROM THE  PRESIDENT

We are now midway in our five-year journey into the changeover of the Philippine Postal Savings Bank, and we have prepared this short report to give us a better appreciation of what we have done so far, and what still needs to be done.  It has only been a short two- and-a-half years – not long compared to the century of the Bank’s history – but the hardwork makes us feel that we have been with the Bank for a long time.

We commenced in mid-2011 when we confronted an emergency situation and found ourselves coming up with a Five-Year Strategic Plan to forestall similar future crises.  (We succeeded in doing both).  We spent the most part of 2012 stabilizing bank operations.  We continued with the task in 2013 even as we lay the foundation for our new programs, led by our flagship trail-blazer, the MBO and our business plan, Postbank Remit, which we are both implementing fully in 2014.

We have all strived so hard in so short a time, something unlike in a bureaucracy.  But then, we are only emulating our leader by the Pasig.  Unlike him, we need not bear the cross of the bohol and tacloban tragedies, but we can make good our promise for Postbank to help the President sustain the country’s economic miracle.

As the year draws to a close, let us pause briefly for the Holidays and then finish what we started.

Merry Christmas and a Happy New Year!

CESAR N. SARINO
President & CEO - Postbank

While it was founded over a century ago, the Philippine Postal Savings Bank is hardly known to the public.  Perhaps because it has not impacted on its goals, or has not left a legacy upon which it can be remembered.  More than just being a bank of the Bureau of Post, Postbank was created from a vision that its presence in the Philippine countryside, through its network of post offices and the friendly “kartero”, will translate into a huge potential market for banking services.  It was to serve as the instrument by which Philpost’s Medium-Term Corporate Plan “to develop the rural financial sector to ensure an adequate supply of credit to the countryside” was to be executed.

Through millennium 1900 Postbank, however, has been beset with many problems:  lack of leadership and commitment, dearth of capital, limited business opportunities, poor infrastructure, and many other constraints which impinge on the viability of any enterprise sought to be established in geographically isolated areas.  It also had to fend off two problems to which many public institutions have become vulnerable:  politicalization and graft and corruption.

A BANK IN CRISIS

In 2010, two major events seemingly conspired to force Postbank to review its mission.  The first event was the assumption into Office of a new President, Benigno S. Aquino, along with a commitment to bring the country towards sustained economic growth.  The second was an impending decline in Postbank’s financial performance which, if not promptly arrested, would mean a major financial loss for the Bank for the first time in its history.  There was therefore the potential embarrassment of a government bent on moving the country forward but its only public savings bank dragging it down.

Expectedly, the Bangko Sentral issued a directive to the new management appointed by President Aquino to intervene with two immediate tasks:

  1. Undertake corrective action to “stop the bleeding” and put the Bank back on track, and
  2. Develop a strategic action plan which would chart a new and dynamic growth path based on more relevant goals.

Forthwith, management carried out a quick review to determine the reasons for its financial problems, which turned out to be a combination of spurious loans and management weaknesses in almost all facets of operation.  The cases of corruption were only a handful, but one was a large relending project involving some 220 individual accounts.  A special task force was created to run after the perpetrators, along with intensive collection efforts and the filing of legal cases.  The processes are still ongoing, and if not for anything else, it should demonstrate to both bank employees and clients that the Bank is serious in pursuing the anti-corruption campaign of the government. 

Ahead of a contemplated reorganization, the Bank likewise replaced some managers who were felt deficient in level of competence and degree of commitment.    New officers were hired to fill up vacancies and resignations, as were short term consultants to respond to specific expertise requirements.

In response to the second directive, Postbank developed a Five-Year Strategic Plan (2012-2016) which it now uses as a “bible” to carry out its revitalization work. Interestingly, it is apparently the first formal and comprehensive plan document to exist in the recorded history of the Bank, and it reflects, if anything, the lack of attention given to the Bank by previous management. 

The new management promptly proceeded to resuscitate the Bank’s apparent poor health. At the governance level, competent managers were installed, operations manuals were developed and updated, and the staff was trained towards their strict compliance. At the operations level, an aggressive marketing and sales effort was launched complemented by a company–wide cost reduction program.

All of these efforts paid off and resulted in a net profit of P5Million at year end 2011, instead of an earlier projected loss of about PhP20 Million.  Just as significant, while the income was modest, it set the course for more stable future operations. In 2012, the Bank posted a net profit of PhP30 Million, and in the current year 2013, preliminary data yield of approximately PhP59 million.

THE SHIFT TOWARDS RELEVANCE

The Five-Year Plan represents a shift back to the Bank’s original purpose.  This was to develop Postbank into a bank for the countryside, whose economic development has lagged behind that of the urban sector, primarily due to a lack of access to financial services.

The disparity in development is now the focus of the government’s economic planners as they pursue the strategy of financial inclusion.  Bangko Sentral survey reports cite glaring weaknesses in the rural banking system: around 37 per cent of Philippine municipalities do not have bank offices, only 20 per cent of rural households have deposit accounts, only 4 per cent have credit cards, and less than 1 per cent have investments in stocks, mutual funds, and fixed income securities.       

Financial access in the countryside can only come about if more banks are set up.  But as mentioned earlier, viability concerns chiefly brought about by the lack of business opportunities in the rural areas and the lack of capital mitigate against rural banking. In fact, the number of rural banks has been  reported to be decreasing.

The concept of utilizing post offices as financial service providers appears to be sound and doable. It represents a rare opportunity to set up many satellite banking facilities at almost the same time, and in areas where they are most needed.  With 1500  existing post offices to choose from, and offering advantages of in-place physical structures such as office space, telecommunications, and even manpower, capital expenses could be reduced, as with the necessary time and effort to set them up. Moreover, they have an existing mass base of rural households which can also serve as the potential market for the banking unit.

The need to shift attention to the countryside, and for Postbank to play an even bigger role in this effort, is being underscored even more as the economic gains  so far achieved do not reach the majority of the intended beneficiaries.  Unemployment continues to rise, and poverty is not being alleviated, Statistics cite that 78 percent of the food poor families live in the rural areas, and that rural families account for 70 percent of the country’s total poor.

In May of 2012, Postbank and PhilPost forged, in the presence of BSP Deputy Governor Nestor Espenilla, a Synergy agreement to undertake special collaborative projects harnessing each other’s facilities and resources.  It was also in the back of the minds of the appointing authorities when the Postbank President Cesar N. Sarino also occupied the concurrent position of PhilPost Board Chairman and Postmaster General Josefina dela Cruz was also made Postbank Chairperson. Likewise, by design, Sarino’s expertise lay on management systems while dela Cruz’ special competence was on local governments, an ideal partnership for a micro bank project, which is rural based but systems oriented.  Among other agreements, PhilPost’s network of post offices will be used to expand the Bank’s outreach.  This will allow the two institutions to jumpstart remittance and electronic financial services and their foray into non-traditional services such as logistics and bills payment. 

THE MICRO BANKS:  A NEW CONCEPT

The MBO program will be pilot tested in two provinces, Bicol and Pangasinan.  The former will serve as the test area for four unbanked municipalities while the latter will be the test location for two financially underserved municipalities.  Through these MBOs, three primary objectives are expected to be met, namely:

  • Most importantly, provide employment opportunities especially in the countryside, by offering small loans to individuals and groups
  • Extend consumption loans and
  • Provide the LGUs with access to credit to improve public service delivery (thus promoting public welfare and life quality), especially in the provision of water, health and sanitation, housing and renewable energy.  The development of the countryside should stem the flow of urban migration and decongest the urban areas from unmanageable human settlements.

Another major program of the Postbank-PhilPost partnership is the Remittance Project, which is finally scheduled to be launched next month.  While the earlier focus was on the international remittance component, domestic remittance is being given parallel attention. The remittance project is being viewed as a potentially lucrative income source which will not only strengthen the bank financially but pump in seed capital and help fund initial operating expenses of the MBO program.  Moreover, the service will be in keeping with the countryside service focus of the bank (and PhilPost as well) since its clientele – the families of OFWs and Philippine residents – mostly come from the rural sector.  With the extensive rural network of the two partner institutions, as well as their public orientation, greater service efficiency could be attained.

Even as Postbank readied its major programs, it has been gearing up organizationally, operationally, and financially, in accordance with the requirements of the Five-Year Plan.

PUTTING OPERATIONAL IMPROVEMENTS IN PLACE

Organizationally, as a follow through to the interim executive review and realignments, a comprehensive study of the Management Organization System was also carried out, taking into consideration the weaknesses uncovered in the 2011 financial fiasco and the manpower needs of the Five-Year Plan.  

Subsequently, the following were put in place:  a Job Evaluation and Performance Appraisal System which shall be operational this year.  Salaries have been rationalized and regular increases, based on merit, shall take effect in 2014.  An Incentive Program shall be implemented based on corporate, departmental, and individual performance this year.  A comprehensive and rationalized training program for all levels of employees shall be operational next year.

As the Bank progresses, its employees’ welfare program is also being enhanced.  Specifically, after almost three years since the previous Board froze all salary increases, the salaries of all employees have been adjusted to conform with thrift banking industry standards.  Special consumption loans have also been rationalized and approved by the Bangko Sentral ng Pilipinas.  The health benefit plan has also been rationalized and made more responsive to the needs of the employees and their families.  Further, a retirement fund is being developed for the Bank officers and employees.

Operationally, the policies, systems and procedures and consequently, the mechanics for their implementation were established.  The operating manuals required by the government regulatory agencies have for the most part been written, updated and completed, except for a few which are still being reviewed.  In summary, the Bank can now be considered generally compliant in this area.

Consistent with the program to upgrade its manpower resources, efforts were also exerted to improve workplace at Postbank’s Plaza Lawton main office.  Office space was expanded for the staff, and a facelift of the building was undertaken focusing on the design and layout, aesthetics, and physical facilities.

The new management has placed a premium on good governance and on a clean and honest government.  Along with the appointment of key officers of proven probity and integrity, the institutionalization of operating systems and other processes not only to ensure smooth work flow but also to insulate the Bank from unscrupulous people from within and outside the Bank was undertaken.

A key organizational move to tighten the check and balance system in the Bank involved the creation of Board Committees to support the Bank’s marketing and relending units by ensuring sound marketing and credit procedures.  The Bank Credit Management Group was also formed to complete the loop in loans processing, review, and approval.

Financially, we can expect that in Year 2013 we shall be able to meet our targets in our Five-Year Plan as well as in our 2013 forecast.  Our capital adequacy ratio is well above the required minimum.  Our NPL has dropped significantly as we have already provided for the losses incurred before we took over the management of the Bank 

The performance indicators reflect a steadily stabilizing situation that shall allow us to pursue new products and processes which should further contribute to the Bank’s inflow of revenues and profits.  This should facilitate Postbank’s long journey into becoming an authentic countryside bank.  

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