BSP likely to lift banks' 5% equity rule in insurance firms

The Bangko Sentral ng Pilipinas (BSP) is considering the possibility of lifting the five-percent equity of banks in insurance companies.

Deputy BSP Governor Nestor Espenilla Jr., in an interview, said the bancassurance rules, which mandate banks to own at least five percent of the equity of the insurance company whose products they help push within premises, were too rigid for rural lenders to engage in the business.

The Chamber of Thrift Banks said that same rigidity has long denied countryside savers with the insurance cover since big commercial banks had the financial resources to take equity positions even in large insurance companies.

The small countryside lenders, whose main goal is selling micro-and medium-scale entrepreneurs or MSMEs run-of-the-mill loan products and microinsurance, find difficulties to meet the rules.

So the thinking among regulators was for the law to be rewritten in a manner that best advances consumer protection while giving small lenders the opportunity to do microinsurance.

?We are already reviewing the cross-selling rules of which bancassurance is one. This is a work in progress. What the monetary board is prepared to do now is support microinsurance because it caters to a sensitive market that could benefit from insurance coverage,? Espenilla said.

The typical rural borrower may have insurance cover for his crops but often goe about his business without that same cover for himself.

Lifting that five-percent rule for thrift and rural banks has immense beneficial impact on a sector that provides the most number of employment for Filipinos and responsible for much of the nation's output.

Espenilla said the only reason why the five-percent rule is applied stringently across all bank classification was because the letter of the law says so.

?Lifting the five-percent equity rule for thrift and rural banks means lifting it also for the regular commercial and universal banks,? said Espenilla.

He said that regulators do not want potential confusion among consumers who may be witless as who to blame for a microinsurance product gone sour, which is why the equity rule is applied strictly.

When banks do not exercise product diligence, which often happens in products they sell but don't own, consumers cannot pinpoint responsibility for products gone bad, Espenilla said.

Consumer protection goals, however, have to be balanced with the need to provide the market with a wider array of financial products that people patronize and this is why rule reviews are necessary, Espenilla said. (PNA)