Corporate Governance and Access to Finance - ESBG

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CASE STUDY 3:PHILIPPINES POSTAL SAVINGS BANK (PPSB)IntroductionThe Philippine Postal Savings Bank (PPSB) has a long and eventful history.Initially created at the beginning of the last century as a division of theBureau of Posts, its purpose was to foster savings by bringing bankingservices to rural areas. Its operations were severely damaged during theSecond World War and it was not until 1946 that the Postal Savings Bankwas able to resume operations. In the 1960´s it was unable to competewith private banks that offered higher interest on savings deposits.While the private banking sector, particularly rural banks, expanded intothe countryside with more attractive products and services, PPSB’s operationsdeteriorated and its solvency status declined. In 1976 the governmentdissolved PPSB. Almost more than twenty years later, in 1994 the PhilpostBoard of Directors reopened the Philippines Postal Savings Bank as asubsidiary to “develop the rural financial sector to ensure adequatesupply of credit to the countryside.”The Central Bank considers the PPSB as an institution in general termssimilar to other thrift Institutions, a sub-sector composed by 74 institutionswith a market share of 9 percent of the system. PPSB share is around0.1 percent of the system. PPSB deposits amount to EUR 68 million andits loans EUR 34 million, of which EUR 2 million to SME.The activities of thrift institutions are similar to those of commercialbanks, but banking regulation establishes certain limits: in particular, theycannot develop international activity and letters of credit. However, in thespecific case of PPSB, it benefits from the privilege of receiving depositsfrom Government institutions, limited only to government-owned banks.This is reflected in the deposit mix: 52 percent of its total deposits(according to the latest figures) were contributed by government entities,while the remaining 48 percent were generated by the private sector.At the same time, since the former are subject to much higher reserverequirements (50 percent, compared to 6 percent in the case of depositsof the public), it follows that a significant amount needs to be invested ingovernment bonds or paper issued by the Central Bank. The final resultis that PPSB’s balance sheet includes significant positions vis-à-vis thepublic sector both in the asset and the liability side, with a relativelybalanced net position.130
Corporate GovernanceThe Central Bank of Philippines is playing an important role in creating asound corporate environment in the banking sector. The Central Bankissued a Code of Good Practices that all the institutions (PPSB among them)are expected to comply with. In addition, it is preparing a comprehensivestrategy to raise the standards of corporate governance by supporting theamendment of the Corporation Code and by developing a corporategovernance assessment and a manual to provide a standard method forevaluating governance structures and practices of financial institutions.Furthermore, locally organized and commercial banks had to participatein the Corporate Governance Survey using the Performance Scorecard forBanks. The results of this evaluation show that universal and commercialbanks get a high score, 84 percent, while government corporations getjust 57 percent, indicating that there is room for improvement amongpublic banks.In the specific case of PPSB, it has a Corporate Governance Code thatwas revised in 2009, according to which “effective bank governancecannot be legislated; sound bank governance is an attitude, a way ofdoing things, and the manner in which owners, directors & managementfulfil the obligation assigned by the public trust”.A major shortcoming in the governance of PPSB is the lack of a charter.The institution is governed by its “Articles of Incorporation”, which canbe approved or amended by its own Board. This is felt as a drawback byPPSB management, in particular from the point of view of having arelatively clear and stable mission and legal protection.In the Philippines there are many other government-owned banks:Development Bank of the Philippines (DBP), Land Bank of the Philippines(LBP), Veterans Bank (now private), Al Amanah (an Islamic Bank). Thisdiversity is based on history and not on strictly different missions. Initiallyborn to address a certain market failure, this in general is no longer thecase. The possibility of merging some of them has been discussed severaltimes, but no decision has been made. The Central Banks does notconsider that these public banks do provide in general any “additionality”to the private sector; government banks being rather competitors ofprivate banks.131
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BoxesBox 1. German Sparkassen 27Box
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EXECUTIVE SUMMARYBackground and obj
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nnAccess to Finance in enshrined in
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Chart A.Corporate Governance, Acces
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nThe study also shows that Corporat
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1. INTRODUCTION1.1. Focus and objec
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WSBI members are by definition acco
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For the particular case of developi
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2. THE LINK BETWEENCORPORATE GOVERN
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Table 2. Main features of the Missi
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Access to financeSparkassen promote
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All these examples illustrate how p
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In the case of Peru, the profits th
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Among the WSBI institutions that re
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BOX 2. KENYA POST OFFICE SAVINGS BA
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The fact that the banking system is
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3. CORPORATE GOVERNANCE -CONCEPTUAL
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Figure 2. Sound Governance of Finan
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As can be seen in the figure above,
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nnnAt the same time, the distance a
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The first two elements (the ownersh
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nHowever, this does not mean denyin
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Cooperatives are similar to mutuals
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3.4. FoundationsFoundations do not
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3.5. Good Corporate Governance prac
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F. DISCLOSURE AND TRANSPARENCYPrinc
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4. ACCESS TO FINANCE -CONCEPTUAL FR
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4.1. Financial deepening and improv
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The board does not have any executi
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In other words, sustainable financi
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The following table shows how the W
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The fourth dimension refers to the
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Table 8. Access to Finance in the f
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Only 27 members established in 21 c
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nnDCI (Depth of credit information
Page 80 and 81: 5.2. Corporate Governance and Acces
Page 82 and 83: 5.2.1. Corporate Governance and Ave
Page 84 and 85: Chart 8.Specific Corporate Governan
Page 86 and 87: 5.2.2. Corporate Governance and Ave
Page 88 and 89: Chart 13. Corporate Governance comp
Page 90 and 91: Chart 16. Corporate Governance Inde
Page 92 and 93: Chart 19. Specific Corporate Govern
Page 95 and 96: ANNEX 1: REVIEW OFTHE LITERATUREThe
Page 97 and 98: Even among the relatively narrow un
Page 99 and 100: Figure A.1. Structure of agents' re
Page 101 and 102: The table captures the essence of s
Page 103 and 104: A case study built by Clarke et al
Page 105 and 106: A very recent contribution to the d
Page 107 and 108: For example, in Latin America, WSBI
Page 109 and 110: The paper examines whether a poor e
Page 111 and 112: For the survival of microfinance in
Page 113 and 114: ANNEX 2: CASE STUDIES 32CASE STUDY
Page 115 and 116: It is one of the major characterist
Page 117 and 118: Although Sparkassen are legally and
Page 119 and 120: Figure A.2. Corporate Loans Market
Page 121 and 122: Financial education is also an impo
Page 123 and 124: Corporate GovernanceKPOSB is wholly
Page 125 and 126: Among the initiatives that the gove
Page 127 and 128: Related to the concession of credit
Page 129: OPERATIONS1. Deposit Base: It was p
Page 133 and 134: To address the problem of capital,
Page 135 and 136: Financial inclusion ranges very hig
Page 137 and 138: CASE STUDY 4:SPANISH SAVINGS BANKS
Page 139 and 140: The uniform financial regulation of
Page 141 and 142: Figure A.3. Governing Bodies - Span
Page 143 and 144: The web-based tool www.rededucacion
Page 145 and 146: On the liability side, CMAC offer m
Page 147 and 148: A specificity of CMAC is that the m
Page 149 and 150: Table A.3.MissionMissionCMAC AREQUI
Page 151 and 152: As of September of 2009, the twelve
Page 153 and 154: Furthermore, the consensus culture
Page 155 and 156: ANNEX 3: QUESTIONNAIREQUESTIONI. Ge
Page 157 and 158: ANNEX 4:THE HONOHAN INDEX 43COMPOSI
Page 159 and 160: COMPOSITE MEASURE OF ACCESS TO FINA
Page 161 and 162: ANNEX 5:QUANTITATIVE RESULTSCountry
Page 163 and 164: Overall Corporate Governance IndexO
Page 165 and 166: REFERENCES- Andrianova, S., Demetri
Page 167 and 168: - FSD Kenya (2009), Financial Secto
Page 169 and 170: - World Bank (2006) The Role of Pos
Page 172: WSBI - ESBG - The Global Voice of S
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Corporate Governance and Access to Finance - ESBG

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