A comparative analysis on the profitability and efficiency ratios of selected rural banks based on the security requirement for the microfinance loans from 1998-2003

• Main Authors: Gorres, Rosheil Fatima S., Redor, Claudia Maris M., Wong, Abigail Grace G., Zara, Sheila Marie R.
• Format: text
• Language: English
• Published: Animo Repository 2006
• Subjects: Loans > Philippines; Credit > Philippines > Management; Banks and banking > Philippines; Microfinance > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/14164
• Institution: De La Salle University

This paper analyzes the profitability and efficiency of selected rural banks based on their security requirement for the microfinance loans. It has the following objectives: (a) to determine the impact of the security requirement (pure guarantee or combination of collateral and guarantee) for microfinance loans on the non-performing loans of the selected banks, (b) to determine the effect of the security requirement (pure guarantee or combination of collateral and guarantee) for microfinance loans on profitability and efficiency ratios for the selected banks, (c) to determine the effect of microfinance portfolio on the non-performing loans of the selected banks, and (d) to determine the effect of microfinance loan portfolio on the profitability and efficiency ratios of the selected banks. The paper will also address some recommendations on how to improve the profitability and efficiency and other areas of concern. Borrowers belonging to the lower end of the society are having difficulty in obtaining loans due to high interest rates and the presence of collateral security thus resolving to borrowing from informal lenders. The establishment of micro-oriented rural banks paves the way for small borrowers to borrow once again from formal lenders. These micro oriented banks require collaterals that are not burdensome to the borrowers such as appliances and business equipment. Moreover, certain rural banks accept collateral substitutes like guarantors or co-makers. This will enable small borrowers to acquire loan without the presence of collateral. The recommendations for other entities involved in this study are the following: For the Bangko Sentral ng Pilipinas, to build an integrated data warehouse that will store all data from the banks for end-user reporting and decision support. For the securities and Exchange Commission, strict implementation of rules such as the timely submission of financial statements and efficient gathering of financial reports are advised. In addition, the need for credit bureau or some entity similar to a credit bureau is strongly recommended to reduce a large extent or even eliminate multiplicity of loans released to single borrower."