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Chapter I
THE PROBLEM AND ITS BACKGROUND

This chapter contains the introduction, background of the study, statement of

the problem, theoretical framework and conceptual framework, research hypothesis,

scope and limitation, significance of the study and definition of terms of the research

study.

Introduction

The creation of rural banks through Republic Act No. 7353 or New Rural

Banks Act provided an avenue to uplift the living standards of people by making

financial services readily available to micro, small and medium scale enterprises.

These banks provide adequate credit to farmers and merchants, and to people of

rural communities in general (Pagoso, 2009). Since the primary source of income in

rural areas is agriculture and selling activities, people seek financial assistance to

lending institutions such as rural banks. However, they encounter problems in

collection turning loan accounts into performing asset such as past due, overdue,

items in litigation and real and other properties acquired.

This greatly affects the asset of the banking institutions. That’s why rural

banks ask for collateral in case the borrower cannot pay .The purpose of this is to

secure the loan and debt. In case clients cannot pay the loan, the property pledged

in the collateral will be foreclosed. It will be transfer to the bank and the bank will sell

or make it available for lease to recover the loss from the debt of the client.

The success and failure of the rural banks primarily depends on its asset

management. According to Abundio D. Quililan Jr., A rural bank will succeed if it is

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run by shareholder base on knowledge and experience they can add in the strategic

management of the bank, as well as by managers who are professionals and who

undergo regular evaluation by board based on performance [ CITATION Tor14 \l 13321 ].

The asset management of foreclosed properties can be assess using the life

cycle approach. Asset management is a structured program to minimize the life-

cycle costs of asset ownership while maintaining required service levels and

sustaining the infrastructure. Each and every asset is managed on an asset-by-asset

basis. The cycle includes the plan, direct, measure and control. This cycle is

applicable to the asset management of foreclosed properties. This explains the plan

or the decision on related activities for the properties that are foreclosed. The direct

explains the marketing approach that will be used in disposing the foreclosed

property. The measure deals with the cost associated in the property and its impact.

The control ensures the results and takes corrective actions.

It is in this context that the asset management of foreclosed properties of rural

banks in Batangas province using life cycle approach be pursue.

Background of the Problem

In the present year, people invest their money to a bank. However, banks

lend their money to gain profit. There is interest in lending money to a bank. Rural

Banking plays an important role engaging whether in agriculture and selling

activities. People often seek financial assistance and often put their money as their

savings in rural banks in rural areas. Due to different circumstances such as

competition or worse of it, is the economic crisis, rural bank tends to fall and lead to

bankruptcy. To avoid it, before lending, banks ask for collateral that can be used as
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replacement incase borrowers cannot pay. Batangas province have several rural

bank institutions, as a proof of continuous progress and development. Rural banks in

the province caters number of fishers, farmers and merchants. Due to the nature of

the job, return of money or amount of income cannot be predicted. Because of this,

they failed to pay the interest on financial institutions like rural banks. They

committed past dues and overdues, until they cannot afford to pay the borrowed

money and the interest associated with this. Foreclosed properties of rural banks in

Batangas province are increasing which is not good for the banks. The inventory of

foreclosed property is increasing due to the asset management of their bank.

According to The Filipino Connection, at 2011, Batangas earns the unenviable

distinction of being the province with the number of rural bank closures. That’s no

laughing matter for Batangueno rural banker’s here. They closed due to bankruptcy.

One of the reason is the unsound asset management of properties that has been

foreclosed. [ CITATION Mar12 \l 13321 ]The researchers chose the topic, for they want to

know how rural banks specifically in Batangas province assess the asset

management of the foreclosed properties using life cycle approach. More so, the

researchers want to know how rural banks handle the foreclosed properties.

Statement of the Problem

This study aims to assess the asset management of foreclosed

properties of rural banks in Batangas province using life cycle approach. Specifically,

this seeks to answer the following questions.

1. What is the profile of the rural banks in Batangas province in terms of:

1.1 years of operation;

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1.2 number of employees;

1.3 average number of clients per quarter;

1.4 geographic location; and

1.5 number of services offered?

2. How may the life cycle of asset management of the rural banks be

describe in terms of:

2.1 plan;

2.2 direct;

2.3 measure; and

2.4 control?

3. Is there significant difference on the asset management of foreclosed

properties when rural banks are grouped according to profile?

4. What is/are the implication of the findings to the bank operations?

Theoretical Framework

There are three important concepts in understanding asset management:

First, asset management is not a “general” approach to things. Each and every

asset is managed on an asset-by-asset basis. Second, each asset is managed

against a plan—which means that there is a plan for each asset. Lastly,

management of each asset follows a management cycle.

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Figure 1.0
Life Cycle Approach
A life-cycle plan is

created for each asset. This

plan includes all the activities associated with acquisition, maintenance, periodic

refurbishments, disposal, and replacement of the asset. The plan is ultimately

expressed in financial terms, since the intent is to manage the asset to minimize life-

cycle costs. Resources are directed, allocated and asset-related activities are

managed in accord with the life-cycle asset plan. Costs of the activities directed in

the previous step are measured, also on an asset-by-asset basis. The impacts of

these activities are also measured, primarily through a condition assessment

program. Based on the results of our measurements, the asset plans are updated,

which may involve re-allocating resources toward or away from each asset.

Conceptual Framework

This study focused on assessment of asset management of foreclosed

properties of rural banks in Batangas province using life cycle approach. To

elaborate the problem, the researchers have come up with a framework that serves

as their guide in conducting this study.

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As shown in the figure 2.0, the first box presents the input which includes the

profile of the rural banks such as years of operation beginning from 20 years and

below, 21-30, 31-40, 41- 50, 51-60 and 61 and above, number of employees starting

from below 10 employees, 11-15, and above 16 employees, average number of

clients per quarter beginning from below 1000 clients, 1001- 1999, 2000- 2999,

3000- 3999, 4000-4999 and above 5000 clients, geographic location which includes

all the district in the province of Batangas, District I, II, III, IV, V, and VI and number

of services offered from 1-5, 6-10, and above 11 services; the life cycle of asset

management of the rural banks be describe in terms of plan, direct, measure and

control.

On the other hand, a directional arrow leads to the process made in the study.

It contains the data analysis using survey questionnaire. Composite mean,

percentage, frequency, weighted mean, one way analysis of variance and brown

forsythe were the statistical treatment used.

Another directional arrow points to the third box labelled as output. After

careful analysis, interpretation and conclusions, the researcher developed an

intervention programs which will help the banks and the other beneficiaries to know

the assessment of asset management of foreclosed properties of rural banks using

life cycle approach. It is the most appropriate output because implications can be

drawn out from the findings.

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Figure 2.0
Conceptual Paradigm

Hypothesis

In order to arrive at a better solution, the researchers came up with this

hypothesis:

Ho: There is no any significant difference on the asset management of

foreclosed properties of rural banks when respondents are grouped according to

profile variables.

Scope and Limitations

The study focused on the assessment of asset management of foreclosed

properties of rural banks in Batangas province using life cycle approach. On the

study covers the profile of the rural banks describing the years of operation, number

of employees, average number of clients per quarter, geographic location and

number of service offered.

The participants of the study were 54 rural banks of Batangas province.

Descriptive method was used in the study with questionnaire as the main tool in

gathering data.

The questionnaire was the only instrument used to gather information which

contributed a lot in providing answers on the specific problems posed in the

beginning of the study. Interview and focus group discussion were conducted to

substantiate and support the responses of the respondents. The statistical

treatments applied were the frequency and percentage, weighted mean, brown-

forsythe and Analysis of Variance (ANOVA).

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The study doesn’t include those banks that doesn’t entertain the researchers but

is included in the list, the same with the banks in list but are now closed. Not

included also is the asset itself of the bank, its liability and equity. The study deals

with the asset management of foreclosed properties.

Significance of the Study

The result of the study may particularly benefit the following:

To rural banks owner and managers, the result and findings of the study will

provide them with an avenue to unravel the underlying problems and issues needed

to be readily addressed while the output of the study will help them improve their

current practices particularly on credit and collection management.

To owners and managers of other business, the output of this study will offer

them with alternatives on how to solve different accounts and issues they may

encounter in their own endeavors.

To bank employees, the results and findings of the study will give them a

better understanding of the banks operation particularly in lending and handling the

foreclosed properties.

To bankers, the results of this study will give knowledge to banks customer to

matters like financial assistance and how the lending process and the foreclosed

properties affects the asset of rural bank.

To researchers, this study will enhance their knowledge and ability in

conducting a research study. It will also enhance the values and virtues of

proponents like teamwork, time management, patience and moral responsibility.

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To future researchers, the findings of the study will give them information that

would serve as useful reference for other related study while the limitations of the

study will provide them an area for future research work.

Definition of Terms

To better understand the following terms presented in this study, the following

were defined both theoretically and operationally.

Asset Management. This refer to systematic and coordinated activities and

practices through which an organization optimally and sustainably manages its

assets and asset systems, their associated performance, risks and expenditures

over their life cycles for the purpose of achieving its organizational strategic plan

(Tsang, 2010). In this study, this is the topic selected by the researcher.

Control. Control in management means setting standards, measuring actual

performance and taking corrective action [CITATION Alm \l 13321 ]. In this study, these

are activities conducted by the banks to conform on the target outcomes of the

previous activities.

Direct. Process in which managers instruct, guide and oversee the

performance of the workers to achieve predetermined goals (Gupta, 2015). In this

study, it is the marketing strategies implemented by the banks to promote the

disposal of foreclosed properties.

Foreclosed Properties. This refers to mortgage property taken in satisfaction

of amount due. (Hill, 2006). In this study, this is the subject matter. Property written

in the collateral taken by bank to the borrower who failed to pay their loan.
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Measure. It refers to quantitative process of collecting, analyzing and/ or

reporting info. Regarding the performance of an individual, group, organization

system or component. (Munir,& Blount. 2014). In this study, this are activities to

determine the cost associated with the foreclosed properties of the bank and its

impact to the operations.

Rural Banks. This refers to entities engaged in the lending of funds obtained

in the form of deposits. It also banks that provide adequate credit facilities to farmers

and merchants or to cooperatives and to people of rural communities in general.

(Pagoso, 2009). In this study, this is the topic selected to be the subject study.

Chapter II
REVIEW OF LITERATURE

This chapter presents the review of related literatures and synthesis

Conceptual Literature

Banks rather than governments are principal creator of money in the modern

world. They are financial institutions that accept deposit and make loans. Include

under the term banks, are firms such as commercial banks, savings and loan

association, mutual saving banks and credit unions. Banks are financial

intermediaries that the average person interacts with most frequently. A person who

needs loan to buy a house or cash usually obtains it from a local bank. Most

Americans keep a large proportion of their financial wealth in bank in the form of

checking account, saving accounts or other types of bank deposits. They deserve

the most careful study [ CITATION Fre06 \l 13321 ].

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The banking environment of today is beset by the rapid pace of accelerating

change. A bank, unlike other types of business undertaking is not easy to organize.

There are stringent and rigid provisions of laws that must be strictly complied with.

Such requirements are due to the fact that the business of a bank is imbued with

“public trust” and “public interest”. Indeed, the banking industry is considered

indispensable to growth of National Economy, a declared policy of the State

embodied in Presidential Decree No. 1738. Banking institutions domestically

organized must be in the form of stock corporations [ CITATION Fel10 \l 13321 ].

Bank includes commercial banks, savings banks, rural development and

investment banks. They approve loans based on collateral presented (Alminar-

Mutya, 2007)

Attention should be further directed to the banking sector. This is because of

the exceptional situation that confronted the banking industry as a result of economic

crisis in the region. The situation was attributable to three factors. First, the problem

of an over extended banking and financial sector with non- performing loan

portfolios, and unextensive un hedge foreign currency debt that was made worse by

deep currency devaluation, resulted in systematic problems in the banking and

financial sectors in the region. Secondly, there was evidence of significant political

and government involvement and interference in lending policies and practices. This

had an effect on the availability of funds for lending and also distorted debt recovery

and enforcement policies. It also considerably affected the application of insolvency

laws and practices. Thirdly, the banking crises I the region exposed some
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extraordinary failings in bank lending practices and credit monitoring, which can also

affect the application of insolvency laws and practices. [CITATION Asi07 \l 13321 ]

Rural Banks

According to RA 7353 (Rural Banks ac3t of 1992), Rural Banks are banks

that provide adequate credit to farmers and merchants, and to people of rural

communities in general. The importance of rural bank is immeasurable. Through

these institutions deficit individual can acquire the funds that they need and develop

the quality of their lives.

The role of rural bank is to promote comprehensive development with the end

in view of attaining a more equitable distribution of opportunities, income and wealth

and sustained increase in the amount of goods and services. (Pagoso, 2009).

According to Republic Act 8791, Rural Banks are entities engage in the

lending of funds obtained in the form of deposits. Basically, they source out funds

from the excess funds of the public and the private sectors and utilize such through

loans to individuals and businesses with the most profitable opportunity. In return,

they provide interest to depositors for their placements and collect interest from the

borrowers for their loan availments. In this way, they serve as the bridge connecting

the savers and the users of funds. Rural banks have a crucial role to play in national

development as 40 percent of Filipinos live outside urban areas [CITATION Ben13 \l

13321 ].

[ CITATION Mar \l 13321 ] in her report “Role of Rural Bank in Philippine

Economic Growth” stressed the historical and descriptive interpretations of rural

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banking. Two of the instable economic significance of rural banks in the Philippines

as expressed by the same author were the solving of the age-old problem of the

granting credit to small farmers and that money supply will help stabilize prices as

there is a continuous flow of credit for production.

T.A Herber in his writing on “The Economic Significance of the Rural Credit

Program of the Philippine government, believes that cooperative movement in the

rural areas should grow and become a permanent fixture of Philippine economic life.

One of the objectives of the rural banks act is to encourage cooperatives. Obviously,

the phase cannot be over looked as it plays an important role in rural credit.

G.W Forster and Marc C. Leager in their book Elements of Agricultural

Economics, believe that credit should be utilized properly otherwise it may deistic

rather than help the borrower. Preclusive needs and time of repayment are two of

the principles useful in the appropriate use of credit which are perhaps the only

factors effective in a more advanced economy.

According to Robert DeYoung of the University of Kansas, SBA study’s co-

author, rural banks can afford to be a little less efficient. They operate with little

competition, but a small, unified community keeps them conservative and honest.

Same goes for the customer.

This study is specifically focused on rural banks. They are government

sponsored or assisted banks which are privately managed and largely privately

owned. They were created to provide an avenue for the development of trade and

industry in the marginalized rural communities. They make financial services readily
 15

available to small market players leading to influx of investments, creation of jobs

generation of income opportunities and ultimately bringing economic development in

the grassroots (www.nscb.gov.ph). Typically they are located and established in

rural areas wherein people in the countryside could avail financial services within

easy reach.

Republic Act 7353, An Act Providing for the Creation, Organization and

Operation of Rural Banks and for other purposes, or New Rural Bank’s Act

;otherwise known as Rural Act of 1992 was particularly created by the government

as its way of alleviating the living standards of the indigenous people in the country

side. As discussed in Section 2 of the said article, the state recognizes the need to

promote comprehensive rural development with the end in view of attaining a more

equitable distribution of opportunities, income and wealth; a sustained increase in

the amount of goods and services produced by the nation for the benefit of the

people and in expanding productivity as a key to raising the quality of life for all,

especially the underprivileged.

The Bangko Sentral ng Pilipinas considers rural banks as its partners in

promoting countryside development. As stated in Section 6 of Rural Act of 1992, the

creation of rural banks shall be primarily for the purpose of meeting the normal credit

needs of farmers, fishermen or farm families owning or cultivating land dedicated to

agricultural production as well as the normal credit needs of cooperatives and

merchants.

Rural banks have operated in the Philippines for more than a half-a-century.

As of 2007, they constituted around 27 percent of all financial institutions nationwide.

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Throughout the years, they have played a significant role in propelling the economic

development to sizeable rural population. They have continued to play a key role in

deposit mobilization campaign like bigger banks. Information and communication

technologies even mobile phone banking are employed by some of them

(www.mb.com.ph).

As stated in the Status Report on the Philippine Financial System 2 nd

Semester of 2008, rural banks situated in CALABARZON area including Batangas

still led in terms of highest assets, loan portfolio, deposit liabilities and capital

accounts. The said area is of industrialized estates and housing zone and an

economic model with effective combination of cutting edge manufacturing hub,

highly productive agricultural sector and fast growing micro, small and medium scale

enterprises. Since Bangko Sentral contributed to the growth of microfinance

institutions through its intensified lending programs.

This implied that most of the rural banks in their early years were able to uplift

their performance and status to the rural banking system and still subsist despite the

competition against other banks. Since the banks are very liquid, and the economy

is growing, the banks will continue to make more loans, and most loans will still bring

back the interest and the principal, enabling the banks to keep lending, thus to

continue operation. Many clients will continue to put money in the banks. This also

indicates that as the years passed and continued to change, rural banks maintained

to capture the loyalty of their borrowers, depositors and clients.

According to Cabrera 2007, when a firm is new, it exerts extra effort to catch

up with the old firms making it more competitive and provide higher productivity
 17

compared to existing or old ones. Also, Dimaculangan and Marasigan, 2006

assessed that most rural banks shows that 95 percent are owned and managed

under the code of Private Corporation, with respect to loan portfolio. Likewise, the

study revealed that all rural banks vary every year due to economic condition which

affects him income of the banks.

Development of the Philippine Banking System

The rapid expansion of the banking system after 1949, as acknowledged by

the Central Bank, can attribute to the challenging demand of the Philippine economy

at that time. As the economic activities of the country expanded, the establishments

of more banks became necessary to meet the increasing material needs of the

country’s rapidly growing population. Also the provision of prefer investment

incentives and inducements contributed to the growth of the industry. The Congress

introduced new types of banks to promote and expand the economy. Meanwhile, the

government by pronouncement and regulation also encourage the private sector to

establish new bank head offices and branches where these new offices would

contribute to more effective mobilization of savings and enhance the banking habit

among businessmen and the general public. Lastly, the expansion of the banking

system can also be imputed to the acceptance of the challenge by Filipino

entrepreneurs. This occurred as the policies of the Central bank gained wide

acceptance and that more banking difference between what the assets is capable of

producing cooperative people, process, technology and information that can help to

determine the financial status of certain firm.

Collateral
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Collateral is a contractual device used by borrowers and lenders around the

world. Collateral has also been around for a long time. In one famous example, a

pound of Antonio’s flesh collateralized Shylock’s loan to Bassanio in Shakespeare’s

“Merchant of Venice.” Generally, the term collateral refers to assets pledged by a

borrower to secure a loan. The lender can seize these assets if the borrower does

not make the agreed-upon payments on the loan, so the lender has some protection

if the borrower defaults. Therefore, the use of collateral can make it easier for firms

to obtain loans to finance their investments. Understanding collateral is important

because it is a characteristic feature of bank loans, which help to channel resources

to their best use. While early research focused mainly on how collateral affects the

borrower’s behavior, recent research has also incorporated lenders’ behavior, for

example, how collateral affects lenders’ incentives to take care in evaluating a

business’s prospects. Economists have also examined the relationship between

collateral and risk, empirically verifying bankers’ common wisdom that collateralized

loans are riskier for the bank than no collateralized loans. To a significant extent,

recent theoretical work on collateral has been driven by economists’ desire to

provide explanations for the use of collateral that are consistent with this empirical

finding among others.

According to the Federal Reserve’s Surveys of Terms of Business Lending,

more than 50 percent of the value of all commercial and industrial loans made by

domestic banks in the U.S. is currently secured by collateral (based on the surveys

for February 2007, May 2007, and August 2007).

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Collateral reduces the cost of borrowing because it gives the borrower

incentives to work hard, but it also increases the cost of borrowing because the

collateral may be worth more to the borrower than to the lender and because

transferring control imposes costs. When a borrower posts collateral, the bank

becomes less conservative in approving his loan. Such a promise might be

believable because there is an explicit contract or maybe because the bank, which

deals with many firms, cares about its reputation for keeping its promises. Collateral

can help the bank distinguish between borrowers. The bank can find out whether the

firm has high costs or low costs as well as other information about the firm’s project,

but only after some investigation. Before the bank investigates, all firms look

identical to the bank. To recoup the cost of evaluation the bank must charge some

fee. To make sure it puts the appropriate amount of effort into evaluating the loan,

the bank charges only those firms whose loans are approved. Otherwise, the bank

can make money by charging a fee without doing an evaluation and then rejecting all

applicants. In turn, firms whose loans are approved end up subsidizing the firms

whose loans are not approved. But since the low-cost firms are the ones whose

loans are more likely to be approved, they know they are the ones subsidizing the

high-cost firms. Using collateral protects the lender if the borrower defaults.

Collateral may also induce the borrower to exert more effort to ensure the loan is

repaid. This is good because borrowers with good (positive NPV) investment

opportunities can obtain credit more easily. However, the use of collateral comes at

some cost. Transferring control may be costly, and the lender may not value the

collateral as much as the borrower does. In addition, a lender protected by collateral

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may exert too little effort in evaluating projects; he may even be induced to engage

in predatory lending. This is bad from society’s standpoint because firms obtain

loans for projects that are likely to waste resources. A long-term relationship

between a borrower and a lender can reduce the need for collateral and save on

some of these costs.

In assessing the collateral aspect of a loan request, the loan offer must ask,

does the borrower possess adequate net worth or own enough quality assets to

provide adequate support for loan? The loan officer is particularly sensitive to such

features as the age, condition and degree of specialization of the borrower’s assets.

Technology plays an important role here as well. If the borrower’s assets are

technologically obsolete, they will have limited value as collateral because of the

difficulty of finding a buyer for those assets should the borrower’s income falter.

Loans may be either secured or unsecured. Secured loans contain a pledge

of some of the borrower’s property behind them (such as a home or an automobile)

as collateral that may have to be sold if the borrower has no other way to repay the

lender. Unsecured loans have no specific assets pledge behind them; these loans

rest largely on the reputation and estimated earning power of the borrower. Secured

loan agreements include a section describing any assets pledge as collateral to

protect the lender’s interest, along with an explanation of how and when the lending

institution can take possession of the collateral in order to recover its funds.

The Bank’s revised Credit Manual provides the guidelines on the acceptability

of collateral and maximum valuation for each of collateral.

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The following are collaterals accepted by the Bank: a) For commercial

lending - cash or government securities, real estate properties, inventory, chattel and

b) For retail lending - mortgages over residential properties.

The Bank also obtains guarantees from corporations which are counter-

guaranteed by the Philippine National Government and from other corporations

accredited by the Bank.

The Bank monitors the market value of collateral, requests additional

collateral in accordance with the underlying agreement, and monitors the market

value of collateral obtained during its review of the adequacy of the allowance for

impairment losses.

It is the Bank’s policy to dispose of foreclosed properties in an orderly fashion.

The proceeds are used to reduce or repay the outstanding claim. In general, the

Bank does not occupy foreclosed properties for business use.

Regarding the collaterals, creditors as a general rule would prefer loans or

credit to be backed up by collaterals as much as are necessary for their self-

protection. It must therefore be something of value which can be easily converted

into cash, deposited as a pledge with a lender to secure the repayment of a loan. In

granting of loans, the rural bank shall give preferences to the application of farmers

and merchants whose cash requirement are small. (Miranda, 2006)

CREDIT

Credit Policy is the most important decision variable available for influencing

the level of receivables. It determines the customers to which a company is willing to

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make credit sales. Most firms have credit department staffed by credit specialists

when an order is received from a new customer, or an old customer wants to buy

more credit than is has previously, the credit department has the responsibility of

approving or disapproving the request [CITATION Las06 \l 13321 ]

Credit means securing something value whether it is tangible or intangible, in

return for a promise to pay at some determined future date. The essence of credit is

confidence on the part of the creditor in debtors willingness and ability to pay his

debt [ CITATION JAp07 \l 13321 ].

Credit is a personal reputation a person has, in consequence of which he can

buy money of goods or labor by giving in exchange for them a promise to pay at a

future time [ CITATION Jos07 \l 1033 ].

The importance of credit in any field of human endeavour or activity cannot be

overstated. However, it has been said with increasing frequency and rightly so, that

the misuse and abuse on the use of credit has wrecked havoc to a nation economy

more than anything else. For this reason, only those who are truly credits worthy

should be extended with credit. This could only be so, if a proper evaluation for the

grant of credit is right taken into account and correctly made. Unfortunately, of the

many problems confronting not only financial institutions but business firms which

grant credit, none could be more difficult and complex than the problem of

determining as to who should be extended credits. Complementary to this problem is

likewise the need of the understanding to what extent and under what conditions

such credits should be extended. [ CITATION Gre11 \l 1033 ]

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Traditionally, the credit function was linked only to accounts receivable

management. On the balance sheet, accounts receivables are reported as an asset

instead of requiring cash at the time service are provided or goods are sold,

payment is accepted at the later date. Accounts receivable was the responsibility

assigned to the credit department. In the management of that responsibility, the

function of a credit department was to evaluate the customer’s ability to pay and to

manage the activities of collecting money. [ CITATION Mic11 \l 1033 ]

Planning

The core of financial management center on planning. The complex nature of

business enterprise demands that management should place greater emphasis

upon financial planning to secure and employ capital resources in the amount and

proportion necessary to increase the remaining factors of production. Under perfect

conditions the finance manager endeavors to synchronize the inflow and outflow of

funds. But in dynamic economic conditions technical advances, higher taxes,

increasing cost of social legislation, fluctuations in the interest rates, and pressure

resulting from public interest in the operation of enterprise tend to disturb the full

employment of funds.

Planning must, however, be complimented by control. The result must be measured

against projections. [ CITATION Moh09 \l 13321 ]

Planning involves choosing a goal and developing a method to achieve that

goal. Planning is one of the best ways to improve organizational and individual

performance. It encourages people to work harder, to work hard for extended

periods, to engage in behaviors directly related to goal accomplishment, and to think

 24

of better ways to do their jobs. Most importantly, companies that plan have larger

profits and faster growth than companies that don’t have plan. Planning is based on

assumptions about the future, and when those assumptions are wrong, the plans are

likely to fail. Finally, planning can fail when planners are detached from the

implementation of plans. (Pagoso, 2006)

Planning is a double-edged sword. If done right, planning brings about

tremendous increases in individual and organizational performances. If planning is

done wrong, however, it can have just the opposite effect and harm individual and

organizational performance.

Planning involves determining organizational goals and a means for achieving

them. Planning is one of the best ways to improve performance. It encourages

people to work harder, to work hard for extend periods, to engage in behaviors

directly related to goal accomplishment and to think of better ways to do their jobs.

But most importantly, companies that plan have larger profits and faster growth than

companies that don’t plan.

Planning is defined as setting goals and deciding how to achieve them.

Planning is coping with uncertainty by formulating future courses of action to achieve

specified results. When you make a plan, you make a blueprint for action that

describes what you need to do realize your goals.

Asset Management plan of foreclosed properties contain description of asset

configuration, Identification of assets by category, Justification for assets, age and

condition of assets.

Directing
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Direct is defined as monitoring, directing, and otherwise influencing people to

work hard to achieve the organizations goals. Leading/Directing involves inspiring

and motivating workers to work hard to achieve the organizational goals. It spend

time connecting with employees on an interpersonal level. This goes beyond simply

managing tasks; rather, it involves communicating, motivating, inspiring, and

encouraging employees towards a higher level of productivity. (Fajardo, 2010)

Directing is said to be a process in which the managers instruct, guide and

oversee the performance of the workers to achieve predetermined goals. Directing is

said to be the heart of management process. Planning, organizing, staffing have got

no importance if direction function does not take place.

According to Human, “Directing consists of process or technique by which

instruction can be issued and operations can be carried out as originally planned”

Therefore, Directing is the function of guiding, inspiring, overseeing and instructing

people towards accomplishment of organizational goals.

And "Activating deals with the steps a manager takes to get sub-ordinates and

others to carry out plans".

Leading involves the social and informal sources of influence that you use to

inspire action taken by others. If managers are effective leaders, their subordinates

will be enthusiastic about exerting effort to attain organizational objectives. The

behavioural sciences have made many contributions to understanding this function

of management. Personality research and studies of job attitudes provide important

information as to how managers can most effectively lead subordinates.

 26

Directing helps in efficient utilization of resources: The proper direction of

money aids in defining the roles and responsibilities of all the employees towards

their own work. Utilization of resources can be effectively done only when there is no

duplication of any efforts, no wastage, overlapping of achievements and so on. The

roles of employees become defined only through proper direction as the manager

uses his control, guiding and instructional abilities and skills of motivating and

inspiring all his subordinates in the organization. This aids in the greatest

employment of resources pertaining to humans, materials, machines and finance

and this further aids in cost reduction and an increase in profits of an organization.

(Dubrin, 2008)

Measuring

“You simply can’t manage anything you can’t measure”, said Richard Quinn,

the vice president of quality at the Sears Merchandising Group. The measurement

managed those in which senior management reportedly agreed or measureable

criteria for determining strategic success, and management updated and reviewed

semiannual performance measures in three or more of performances areas. (Kinicki

and Williams, 2016)

Measurement is the process of collecting, analysing and/or reporting

information regarding the performance of an individual, group, organization, system

 27

or component. And a quantifiable indicator used to assess how well an organization

or business is achieving its desired objectives.

Measurement is “the process of quantifying the efficiency and effectiveness of

past actions” (Neely, 2006) while (Mouline, 2007) defines it as "the process of

evaluating how well organisations are managed and the value they deliver for

customers and other stakeholders”.

Measurement refers to numerical information that quantifies input, output, and

performance dimensions of processes, products, services, and the overall

organisation (outcomes). (Sidney, 2010)

Controlling

Controlling is defined as monitoring performance comparing it with goals, and

taking corrective action as needed. This also describes a constant feedback loop

headed in the right direction. (Alminar, 2007)

Controlling is monitoring progress toward goal achievement and taking

corrective action when progress isn’t being made.Control in management means

setting standards, measuring actual performance and taking corrective action.

Control loss occurs when behaviour and work procedure do not conform to

standards.Managerial control implies the measurement of accomplishment against

the standard and the correction of deviations to assure attainment of objectives

according to plans. (Koontz, et al. 2006)

Controlling is an important function of management which all the managers

are required to perform. In order to contribute towards achievement of organizational

 28

objectives, a manager is required to exercise effective control over the activities of

his subordinates.

Controlling can be defined as a managerial function to ensure that activities in

an organization are performed according to the plans. Controlling also ensures

efficient and effective use of organizational resources for achieving the goals.

Hence, it is a goal oriented function.

Often, controlling and management control are considered same. However,

there is a vast difference between the two. Controlling is one of the managerial

functions while management control can be defined as a process which managers

follow to perform the controlling function.

Management control refers to setting of predetermined standards, comparing actual

performance with these standards and, if required, taking corrective actions to

ensure the achievement of organizational goals.

Real and Other Properties Acquired (ROPA)

Real and other properties acquired (ROPA) in settlement of loans through

foreclosure or dation in payment shall be booked under the ROPA account as

follows:  (i) on the date of the entry of judgment in case of judicial foreclosure;(ii) on

the date of notarization of the Sheriff’s Certificate in case of extra-judicial

foreclosure; and (iii) on the date of notarization of the Deed of Dacion in case of

dation in payment (dacion en pago).  Real and other properties acquired shall be

booked initially at the carrying amount of the loan (i.e., outstanding loan balance

adjusted for any unamortized premium or discount less allowance for credit losses
 29

computed based on PAS 39 provisioning requirements, which take into account the

fair value of the collateral) plus booked accrued interest less allowance for credit

losses (computed based on PAS 39 provisioning requirements) plus transaction

costs incurred upon acquisition (such as non-refundable capital gains tax and

documentary stamp tax paid in connection with the foreclosure/purchase of the

acquired real estate property): Provided, That if the carrying amount of ROPA

exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be

conducted by an independent appraiser acceptable to the BSP. The carrying amount

of ROPA shall be allocated to land, building, other non-financial assets and financial

assets (e.g., receivables from third party or equity interest in an entity) based on

their fair values, which allocated carrying amounts shall become their initial costs.

The non-financial assets portion of ROPA shall remain in ROPA and shall be

accounted for as follows: a) Land and buildings shall be accounted for using the cost

model under PAS 40 “Investment Property”, b) Other non-financial assets shall be

accounted for using the cost model under PAS 16 “Property Plant and Equipment”,

c) Buildings and other non-financial assets shall be depreciated over the remaining

useful life of the assets, which shall not exceed ten years and three years from the

date of acquisition, respectively; and d) Land, buildings and other non-financial

assets shall be subject to the impairment provisions of PAS 36 “Impairment”.

Financial assets, on the other hand, shall be reclassified and booked according to

intention under HFT, DFVPL, AFS, HTM, INMES, Unquoted Debt Securities

Classified as Loans or Loans and Receivable and accounted for in accordance with

the provisions of PAS 39, except interests in subsidiaries, associates and joint
 30

ventures, which shall be booked under Equity Investments in Subsidiaries,

Associates and Joint Ventures and accounted for in accordance with the provisions

of PAS 27, 28 and 31, respectively. ROPAs that comply with the provisions of PFRS

5 “Non-Current Assets Held for Sale” shall be reclassified and accounted for as

such. Claims arising from deficiency judgments rendered in connection with the

foreclosure of mortgaged properties shall be lodged under the real account

“Deficiency Judgment Receivable”; while probable claims against the borrower

arising from the foreclosure of mortgaged properties shall be lodged under the

contingent account “Deficiency Claims Receivable”.

 Appraisal of Properties.   Before foreclosing or acquiring any property in

settlement of loans, it must be properly appraised to determine its true economic

value.  If the amount of ROPA to be booked exceeds P5 million, the appraisal must

be conducted by an independent appraiser acceptable to the BSP.  An in-house

appraisal of all ROPAs shall be made at least every other year: Provided, That

immediate re-appraisal shall be conducted on ROPAs which materially decline in

value.

Non-Cash Payment for Interest.  Financial institutions that accept non-cash

payments for interest on their borrowers’ loans shall book the acquired assets as

ROPA.  The amount to be booked as ROPA shall be the booked accrued interest

less allowance for credit losses (computed based on PAS 39 provisioning

requirements): Provided, That if the carrying amount of ROPA exceeds P5 million,

the appraisal of the foreclosed/purchased asset shall be conducted by an

independent appraiser acceptable to the BSP.  The carrying amount of ROPA shall
 31

be allocated in accordance with Item (c)2 and shall be subsequently accounted for in

accordance with Item (c)3 of this Section.

 Sales Contract Receivable (SCR) shall be recorded based on the present

value of the installments receivables discounted at the imputed rate of interest.

Discount shall be accreted over the life of the SCR by crediting interest income using

the effective interest method.  Any difference between the present value of the SCR

and the derecognized assets shall be recognized in profit or loss at the date of sale

in accordance with the provisions of PAS 18 “Revenue” Provided, furthermore, That

SCR shall be subject to impairment provision of PAS

39. (http://www.bsp.gov.ph/regulations/regulations.asp?id=794)

“Real and other properties acquired (ROPA) should be liquidated in a period

of five years, as required by the central bank. But there are still so many banks that

hold on to their ROPA even if they already have liquidity problems,” Chuchi G.

Fonacier, BSP managing director for supervision and examination, said at the Rural

Bankers Association of the Philippines (RBAP) symposium. Banks preferred to be

penalized by the BSP instead of sell their foreclosed assets as they wait for these

properties’ prices to rise. “During examinations, there are some banks that cannot

even serve deposits anymore, their capital is deficient, and yet they still cannot let go

of their ROPA,” Ms. Fonacier said.

While it is a business decision on the part of banks to make the most out of

their foreclosed assets, she stressed that banks are not in the business of managing

property.

Capital adequacy should still be the primary concern, she added.

 32

Liquidating these assets can inject much-needed capital to help banks comply

with the 10% capital adequacy ratio.

The issue was raised during the RBAP symposium as some rural banks

complained the BSP doesn’t teach them how to sell or market their foreclosed

assets. They claimed that, had they known they had to sell their ROPA, some banks

wouldn’t even have to be shuttered since they would have made money from the

sales.

BSP Deputy Governor Nestor A. Espenilla, Jr. rebuffed these allegations,

though, pointing out that this is banks’ responsibility.

“That’s part of what they need to know as bankers. If they don’t know, they

should obtain the knowledge from appropriate experts or hire one,” Mr. Espenilla

said.

He urged banks to dispose of their ROPA within the five-year timeframe

required by the BSP because the assets are illiquid and unproductive. Moreover,

they weigh on banks since they are required to set aside cover for their ROPA.

Real and Other Properties Owned and Acquired represents properties other

than those used for banking purposes or held in the investment portfolio which were

acquired by the banks in the settlement of loans or other reasons including interest

accrued and holding cost or bid price. [ CITATION Ara08 \l 13321 ]

Foreclosed Assets, or ROPA, are not much of an improvement for a loan

gone badly as the bank still has to somehow transform these assets into money

earners by some means or other. The ROPA can either be sold or signed off on a
 33

lease- purchase contract. Or these and the bank’s bad loans may be unloaded via

Special Purpose Vehicle Law. [ CITATION Rey09 \l 13321 ]

Real and Other Prop (Burerties Owned and Acquired (ROPA) is a term often

seen in the settlement of loans and receivables and includes real and chattels often

collateral – secured loans acquired by way o diction en pago or judicial of extra

judicial forecloses, or execution of judgement (Burgonio, 2006).

According to circular No. 306, Real and Other Properties Owned and

Acquired (ROPA) represents real and other properties owned and acquired by bank

in settlement of loans and/or for other reasons. The property acquired by the bank in

settlement of shall be loans through foreclosure or dacion in payment shall be

recorded at the balance of the loan (principal plus booked accrued interest

receivable for time loans, or principal less unamortized income for bills discounted)

or bid/purchase price, whichever is lower (BSP Archieve, 2007)

By accepting properties as payment for loans that were income generating,

the banks’ funds will be stuck in assets were it will not be earning. These properties

will be included in the bank’s Real and Other Properties Owned and Acquired

(ROPA) and will be considered as “non-performing assets”, a category that includes

non-performing loans (NPLs) (Rimando, 2007). The assets quality of banks

deteriorated due to increasing number of non-performing loans while real and other

properties owned and acquired increase due to poor payment of loans (Arroyo,

2006).

Foreclosed properties are entering the market, foreclosed properties

increasingly are unlikely to be purchased by responsible homebuyers or long-term

 34

investors. The result instead has been a glut of vacant homes owned by lenders

(“real estate owned” or REO properties) as well as absentee ownership, short-term

speculation (“flipping”) and abandonment. Each of these outcomes threatens to

impose burdens on neighboring property owners and local governments and to

trigger further cycles of neighborhood disinvestment and abandonment in the

hardest hit areas. (Furtman, 2008)

According to The Filipino Connection, at 2011, Batangas earns the

unenviable distinction of being a province with the number of rural bank closures.

That’s no laughing matters for Batangueno rural bankers here. (Luistro, 2012). aside

from this reason, some rural banks were upgraded to the other classifications of a

bank.

Banks aren't living up to pledges they made in last year's landmark

government settlement of mortgage servicing and foreclosure abuses, according to

an advocacy group's survey of FRBB. The FRBB said banks continue to pursue

foreclosures against borrowers seeking loan modifications - a practice they had

sworn off - and have been ineffective at providing well-informed employees to help

troubled borrowers one-on-one. (Reckard, 2013)

We find evidence that conflicts of interest are pervasive in the asset

management business owned by investment banks. Using data from 2008 to 20140,

we compare the alphas of mutual funds, hedge funds, and institutional funds

operated by investment banks and non-bank conglomerates. We find that, while no

difference exists in performance by fund type, being owned by an investment bank

reduces alphas by 46 basis points per year in our baseline model.

 35

(Berzins and Liu et. al, 2013)

Asset management divisions at global banks now contribute a much higher

proportion to group profits and revenues, and the expectation is that the importance

of their investment units will continue to grow. Alex Birkin, head of wealth and asset

management advisory at EY, the consultancy, says: “[Fund management] has not

gained the sexiness of investment banking yet — but these divisions have gone from

being non-core assets to core. As banks scale down other operations, the limelight

is falling on asset management. (Marriage, 2015)

Asset management is the process of deciding where best to invest money.

Asset management firms are entrusted with clients' money and invest it long-term.

By investing in assets and markets growing in value, the firms hope to maximise

their clients' returns on their money. Asset management firms usually arrange their

investments into distinct funds that are invested according to particular criteria. For

example, a fund might invest in a mixture of bonds and equity (see glossary for

definitions) from all around the world, or a much more strictly-defined set of assets.

Funds can be actively managed, where qualified fund managers use their judgement

and experience to generate a good return, or passively managed by elaborate

computer systems. Though managers tend to gravitate towards assets with the best

returns, it is vitally important to reduce risk by maintaining a balanced

portfolio.Anybody with large amounts of capital in reserve could use asset

management services. In practice, the industry's clients are usually means insurance

companies, retail banks and pension funds, all of which hold large deposits from

people who use their services. Unlike investment banks, asset management firms
 36

don't invest their own money. They earn money through levying fees on their clients,

usually a proportion of the total money invested. Asset management weathered the

financial crisis well, and has been growing ever since. This means jobs for graduates

are up for grabs. Because the investments are long-term, and the firms tend to steer

clear from the complicated financial products that caused the crisis, asset

management is seen as a stable way of making money.

(Corcoran, 2013)

Research Literature

The assessment of the asset management of foreclosed properties of rural

banks in Batangas province using life cycle approach is the focus of the study.

Presented in this section are the studies which were found significally related to it.

Relative to the focus of the study which is asset management of foreclosed

properties of rural banks in Batangas Province, the study of Dalman (2008) also

centered in the lending procedures of selected rural banks in Metro Manila. It came

out that lending policies and procedures of the respondents covered the areas

including approval limits, credit facilities, lending rates, loan standards and market

area. Included in the loan standards were the four Cs of credit such as character,

capital, capacity and collateral. Most of the said banks adopted policies in setting up

tolerable past due ratio and loan loss reserves. Repayment programs were usually

set and monitoring accounts was also done.

The study of Mercado (2014), on the other hand, reveals that as explained by

the respondents, agricultural loan was used as additional working capital for farming

or livestock’s. It often became non-performing when borrowers missed out payments

 37

particularly when they did not earn the expected return from their harvest or produce

due to natural calamities, other economic factors and animal diseases. There were

also instances when the borrowers diverted the use of borrowed funds, in which

case, they did not earn the expected return on investment. Microfinance loans, as

explained by the respondents, brought significant increases to their income.

However, they eventually became problem accounts. Based from the respondent’s

usual experience, borrowed funds were diverted to other use such as personal

expenses or payment of loan with other creditors. The improper loan utilization

resulted to borrower’s difficulty in repayment. There were also cases wherein the

borrowers’ cash flow did not fit in the payment scheme. Aside from that, there were

also payments which were not remitted to the bank that caused disputes among

members of the group who were jointly and severally liable. The subject of this study

was the 28 personnel from ten rural banks from Lipa City, Padre Garcia, Rosario,

San Jose and San Juan. They were composed of ten loan officers, five collection

officer, nine loan bookkeepers and four collection staff members from head offices

selected through purposive sampling. The researcher used Questionnaire, Interview

and documentary analysis.

The study of Abarquez , et.al (2006), revealed that selected rural banks do

not differ significantly in the nature of their day to day operation relative to the length

of time in operation, official banking hours, official working days as well as in

computerization system. Rural banks offer a regular peso saving and peso time

deposit, demand deposit and new account where in the interest vary from 7% to

11% in which they give 30 days as a minimum term of deposit. It was also revealed
 38

that the rural banks grant of loans to their clients but the average minimum amount

of loans vary from 200,000 to lowest 10,000. They tend to be very strict with their

grant of loans as evidence by a voluminous requirement that they demand like of

collaterals that they accept.

Based on study of Carolino et.al 2006, all four selected rural banks are

operated for more than 21 years. These banks employed 5 – 21 employees and the

highest market share attained was a rate of 37%. The profitability of four selected

rural banks measured by their return on equity revealed that coop bank in Batangas

was the most profitable for obtaining the highest rate of 94% during its operation in

2001 due its high amount of capitalization. These study used descriptive method of

research complemented by documentary analysis.The respondents used was the

rural bank itself located and operating in the area of Batangas City.

In study of Abratigue, et.al (2008), determined the significant difference in the

changes between commercial and rural bank in Lipa City. It also discussed the

importance of providing loans of commercial banks that serves as bread and butter

of their whole operation. They use questionnaire as their research instruments. They

also interviewed persons that gave them ideas of the concept of their study.

The study done by Mendoza et al. (2006) serve also as a reference material

for the researchers about the lending policies of rural banks, for that reason the

researchers have a background on the operation of the rural banks in terms of

lending.

However, this study does not discuss any topic about the foreclosed asset or

Real and Other Properties Owned and Acquired (ROPA). It focused more on the
 39

lending operation of the rural banks. While this study concentrated in assessment of

the asset management of foreclosed properties of rural banks using life cycle

approach.

Some lenders indicate a willingness to donate or deeply discount the sale of a

nonperforming loan to a qualified non-profit or public agency that is committed to

creating affordable housing. This approach involves the sale of discounted,

nonperforming mortgage notes prior to foreclosure in which the borrower has

abandoned the property and the property is at risk of significant deterioration during

the foreclosure process. The entity acquiring the note must be prepared to incur

legal costs and to secure and manage the vacant property during the foreclosure

process. Donation to an entity that is prepared to shoulder exposure to legal liability

(e.g., environmental clean-up or accumulated maintenance fees or fines) may be the

best resolution where a lender chooses not to pursue foreclosure in order to avoid

this liability. (Canavan, 2009)

Rural Bank is authorised under its AFSL to provide financial product advice

about, and issue deposit and payment products. The study conducted by Atienza in

2007. Regarding the operation of rural banks reveals the operation, the deposits and

loan as well as the problem encountered and the possible solution employed by rural

banks with regards to marketing, management, technical and financial aspects. As

stated by De Castro (2008), almost all of the Rural Banks in Batangas province

offered agricultural loans and commercial loans.

According to Memorandum Circular No. 54, RA 7160, otherwise known as the

Local Government Code of 1991 (LGC), provides that cities and municipalities may
 40

reclassify agricultural lands into non-agricultural uses within their respective

jurisdictions, subject to the limitations and other conditions prescribed under Section

20.

The study of Alilio et al (2014) found out that most number of loans belong to

agricultural loan. Meanwhile, the highest frequency of 10 or 35.7 percent out of 28

respondents were on 1-3 percent of past due agricultural loans bracket. Only 4 or

14.3 percent and 10 percent and above past due agricultural loans bracket. A

person may have sufficient resources for repayment at the moment, but perhaps he

has not been on his job for long or he has not been on his job for long or he has a

history of changing jobs, thus can cause the banks to assess the person as being at

high risk for defaulting on his payments.

Synthesis

The present studies deal with the study asset management of foreclosed

properties of rural banks in Batangas province using life cycle approach. The

researchers made an interview research and look at different thesis with the same

study.

Rural banks started as a means to protect the farmers from usurers but

eventually changed financial intermediary. Likewise, rural banks provide several

services to the community and do it in possible way.

Conceptual literature composes of the discussed points that are associated in

assessing the asset management of a bank in terms of plan, direct, measure and

control. It also tackled how the banks process their foreclosed properties. According
 41

to circular No. 306, Real and Other Properties Owned and Acquired (ROPOA)

represent real and other properties owned and acquired by bank in settlement of

loans and/or for other reasons. The property acquired by the bank in settlement of

shall be loans through foreclosure or dacion in payment shall be recorded at the

balance of the loan (principal plus booked accrued interest receivable for time loans,

or principal less unamortized income for bills discounted) or bid/purchase price,

whichever is lower (BSP Archieve, 2007) .

The life cycle of assret management starts with planninng which is the core of

financial management. Next was Directing which deals with the process in which

managers instruct, guide and oversee all the performance to achieve pre determined

goals. Third was measuring and it’s the quantifiable indicator used to assess how

well an organization or businesses is achieving its desired objective. Last was

controlling which is defined as monitoring performance comparing it with goals, and

taking corrective action needed.

The study of Dalman serve as reference. It deals with the lending procedures

of selected Rural banks in Metro Manila. It also deals with the four C’s of credit such

as character, capital, capacity and collateral. Present study also deals with credit

and also give emphasis to collateral. The difference is that the past study’s

respondent was the rural banks in Metro Manila while the present study’s

respondents were the rural banks in Batangas Province. The past study do not

focuses on the asset management of foreclosed properties.

 42

Mercado’s study deals with the non performing asset of rural banks. The past

study was same to the present study in a way that they both agree most of the

clients of the rural banks are those of farmers, fisherman and merchants.

The study of Arbaquez et al serve as reference and is similar to present study

because they both found out that the years of operation of a bank doesn’t differ

significantly in the nature of their operation. They differ because ROPOA and

foreclosed property wasn’t discuss to the past study.

The study of Carolino also served as the reference of the researchers. They

both discuss the same profile specifically in the years of operation and number of

services offered.The difference between the past and present study was the

respondent of the past study is conducted within Batangas City area. While the

present researchers conducted their study in entire province of Batangas. The bank

employed up to 5 – 21 emplyees. but in the study of the present researchers 10 and

below employees are mostly hired in the present rurral banks. .

The difference between the present and past study is that past studies does

not discuss any topic about the foreclosed asset or Real and Other Properties

Owned and Acquired (ROPOA). While other past study just like the study of

Mendoza entitled “Analysis of Lending Policies of Selected Rural Banks in Batangas

City”, focused more on the lending operation of the rural banks. While this study

concentrated in assessment of the asset management of foreclosed properties of

rural banks using life cycle approach.

Some lenders indicate a willingness to donate or deeply discount the sale of a

nonperforming loan to a qualified non-profit or public agency that is committed to

 43

creating affordable housing. This approach involves the sale of discounted,

nonperforming mortgage notes prior to foreclosure in which the borrower has

abandoned the property and the property is at risk of significant deterioration during

the foreclosure process. The entity acquiring the note must be prepared to incur

legal costs and to secure and manage the vacant property during the foreclosure

process.

With the cautious examination of related literature, the conceptual literature

has contributed knowledge to the researchers to have a clearer and better

perception about asset management of foreclosed properties of rural banks using

life cycle approach.

In relation of that this study give some information about what are the

meaning of said terms in the study. This may help the researchers to know the

process of how foreclosed properties dispose in a bank.

Chapter III
RESEARCH METHODOLOGY

This chapter presents the method to be used and procedures to follow by the

study. It discuss the research design, research instruments use, sampling design,

subject involve, data gathering procedure and statistical treatment of the gather

data.

Research Design
 44

This study was designed to assess the asset management of foreclosed

properties of rural banks in Batangas province which was made possible through

the use of research triangulation. With this, descriptive correlation method of

research was utilized by the researcher. The paper assesses and describes the life

cycle of asset management of foreclosed properties of rural banks in terms of plan,

direct, measure and control.

According to Calderon (2011), descriptive survey method involves the

description, recording, analysis and the interpretation of the present nature,

composition or processes of phenomena. The focus is on prevailing conditions or

how a person or group or thing behaves or functions in the present. The researcher

will utilize questionnaire and interviews to generate data needed in this research.

Furthermore, the researcher used this type of design to better facilitate the study

and achieve the best possible results. The descriptive method of research is the

most suited research method to employ so as to assess the asset management of

foreclosed properties.

Respondent of the Study

The respondent of the study were the Rural Banks located and operating in

the entire province of Batangas. The list came from the Planning and Development

Office of the Batangas Provincial Capitol. The total listed rural banks were 109.

While conducting the study the researchers found out that some of the banks were

already closed. According to De Vera (2016) of the Philippine Daily Inquirer, BSP

ordered shutting down of rural banks due to insolvency. And some banks did not
 45

entertain the researcher, that’s why out of 83 rural banks that are still operating, only

54 rural banks were able to answer the questionnaire. The respondent of the study

was the rural bank itself represented by each bank managers. These subjects was

considered as they could best respond to the questions on sensitive concerns on the

asset management of foreclosed properties using life cycle approach of rural banks

under study due to the position they held in the bank.

Sampling Design

Sampling design refers to the rules and procedures by which some elements

of the population are included in the sample. This was also a method chosen to

select the sample from the overall population. (Calderon, 2010)

Convenience sampling was used in the study because the respondents were

easy to reach. Setting up this type of sampling was done by simply creating a

questionnaire and distributing it to their targeted group. Through this method,

researchers easily finished collecting data in a matter of hours, free from worry about

whether it is an accurate representation of population.

Though non-probability sampling may lead to not normal distribution of error

in gathering data, the researches still test the hypothesis since they have 56

respondents. This is greater than 30. This is base on the Central Limit Theorem.

The central limit theorem (CLT) is a statistical theory that states that given a

sufficiently large sample size from a population with a finite level of variance, the

mean of all samples from the same population will be approximately equal to the

mean of the population.

 46

The CLT also states that regardless of the population distribution model, as

the sample size increases, the sample mean tends to be normally distributed around

the population mean, and its standard deviation shrinks as number increases. The

sample must be independent and sample size must be big enough.

(homepages.math.uic.edu)

Data Gathering Instrument

Research triangulation was employed including researchers-made

questionnaire to gather data for this study.

The researchers-made questionnaire was the primary data gathering

instrument that was used to elicit the responses on the problems posted for the

study. To draw out information for inclusion questionnaire items, the researchers

went to the libraries of Batangas State University Main I, Lipa and Malvar Campus,

De La Salle University Taft, and Far Eastern University. Electronic references was

also reviewed.

The researches made questionnaire was composed of two parts. The first

part was centered on the profile of the bank in terms of years of operation, number

of employees, average number of clients per quarter, geographic location and

number of services offered. The second part was focused on the assessment of the

asset management of foreclosed properties of rural banks in Batangas province

using life cycle approach which includes plan, direct, measure and control.

To ensure clarity and correctness of items to include in the said instrument,

the questionnaire was validated by bank managers of selected rural banks. They
 47

was considered to be in the best position to do the validation considering their

significant knowledge and hands-on experience of the topic under investigation. The

panel members was also asked to evaluate the instrument and made necessary

correction and suggestions. These was noted and incorporated in the instrument

before coming up with the final draft that was used in the pilot testing. The pilot

testing was done with rural banks situated in Batangas province. Bank managers

was selected as respondents. The result of the dry run was evaluated by selected

rural banks employees to determine if vital information was already adequate to

answer the problems posted at the beginning of the study.

After incorporating necessary corrections on the instruments and coming up

with the final revision, it was then reproduces and administered to bank managers of

rural banks in the entire province of Batangas. The list of said rural banks was

derived from the Planning and Development Office of Batangas Provincial Capitol.

The researchers chose different banks in every district in Batangas province

where they onducted their dry run. The respondents of the study used in dry run is

20 rural banks. And the result of Cronbach's Alpha   is .858 with 32 number of items.

The items in the questionnaire was scored using a Likert Scale weighted

value of 1 to 4 with 1 as the lowest and 4 as the highest value. These were given

caegoral response at its corresponding verbal interpretation. as to frequency and

importance using the following scale continuum:

Option Interval Categoral Verbal

Response Interpretation
4 3.50 to 4.00 Strongly Agree Excellent
 48

3 2.50 to 3.49 Agree Satisfactory

2 1.50 to 2.49 Disagree Fair

1 1.00 to 1.49 Strongly Disagree Poor

The verbal interpretation Excellent, Satisfactory, Fair and Poor corresponds

with its categoral response Strongly Agree, Agree, Disagree and Strongly Disagree.

This described the assessment made by the researchers on the asset management

of foreclosed properties.

Data Gathering Procedure

The researchers requested a referral letter to the adviser for them to be

accommodated by the Planning and Development Office of the Batangas Provincial

Capitol to ask for the list of rural banks that were located and still operating in

Batangas Province.

The researcher conducted their dry run on the second week of September at

the different district in the entire province. It took two weeks to finish the dry run.

The retrieval of researcher- made questionnaire was done after a week from

date of distribution while the actual interview was done during the respondent’s most

convenient time. The results was forwarded to a statistician for the statistical

treatment after which the data are analyze and interpreted.

The actual survey was conducted at Batangas province on the last week of

September until the second week of October 2016. The researchers started the

actual survey at the Sto. Tomas, Tanuan and Malvar. Retrieval of questionnaire was
 49

made the day after. The researcher went next to San Jose and Mataas na Kahoy

were all the questionnaires was retrieved on that day also. Next was on Lipa were

the retrieval of questionnaire was two days after. The researcher went next to

Nasugbu, Calaca, Lian were the researchers hire van because of the distance of this

places. All of the quesionnaire was retrieved also on that day. The day after, the

researches went to San Juan, Rosario, Garcia and Ibaan were the questionnaire

was retrieved also that day. Next was on Taal, Cuenca, where the questionnaire was

retrieved on that day also and Lemery where the rural banks doesn’t entertain the

researcher.

Statistical Treatment of Data

The following statistical tools were used to treat the gathered data.

Frequency. This was used to determine the number of responses of each group

of respondents for each item included in years of operation, number of employees,

average number of clients per quarter geographic location and number of services

offered.

Percentage. It is a descriptive statistics which distinguishes what part of the total

participants fall under certain categories. It is computed to determine the proportion

of a part to a whole as a given number of participants in relation to the entire

population. This method was used on the profile of selected rural banks in terms of

years of operation, number of employees, average number of clients per quarter

geographic location and number of services offered.

 50

Mean. This is synonymous to average. It is the summing of all the value of an

item. This was used in assessing the asset management of foreclosed properties.

One way Analysis of Variance. This was used to know the significant

differences on the responses when grouped according to years of operation, number

of employees, average number of clients per quarter geographic location and

number of services offered.

Brown- Forsythe. This was used as statistical test for the equality of group

variances based on performing an ANOVA on a transformation of the response

variables. This was used to test the significant difference of response about

measures when grouped according to number of services.

Chapter IV
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

This study aims to assess the asset management of foreclose properties of

rural banks in Batangas Province using life cycle approach. Specifically, this seeks

to answer the following questions.

Profile of the rural banks in Batangas Province in terms of:

1.1 Years of Operation;

Table 4.1.1 presents the frequency distribution of the respondents

when grouped according to years of operation.

Table 4.1.1
 51

Distribution of Selected Rural Banks in Terms of Years of Operation

Years of operation Frequency Percentage
20 years and below 23 42
21-30 8 15
31-40 4 7
41-50 9 17
51-60 9 17
61 and above 1 2
Total 54 100

The data above shows that 23 out of the total 54 respondents belong to the

year bracket that is below 20 years equivalent to 42 percent. This is followed by

those who belong to year bracket of 41 to 50 and 51 to 60 at 17 percent. This is

followed by those who belong to 21 to 30 years of operation at 15 percent. This is

followed by those who belong to the bracket of 31 t0 40 years of operation at 7

percent. The group with least number of respondents is those in the 61 years of

operation and above at 2 percent. The data shows that although the numbers of the

respondents belonging to each bracket are not equal, still they are well- represented

in the researcher’s sample.

Rural banks commonly operated 20 years and below because of the need of

the society, there arises rural banks. Because of bankruptcy the BSP forces to shut

down a bank that’s why few banks only reach to 60 years and above. According to

The Filipino Connection, at 2011, Batangas earns the unenviable distinction of being

the province with the number of rural bank closures. That’s no laughing matter for

Batangueno rural banker’s here. They closed due to bankruptcy. One of the reason

is the unsound asset management of properties that has been foreclosed. [ CITATION

Mar12 \l 13321 ] Aside from this reason, some rural banks were upgraded to other

classifications of bank.
 52

The study of Maala et. al (2014) is contradicting to this study which states that

the majority of the rural banks had been in operation of more than 31 years because

on that generation banking institutions are actively competing with the other industry.

Specifically, rural banks give services to the people of rural areas for a longer time

which is their advantage from majority of other banking institution. That’s the reason

why rural banks also go with trends like in technology.

Furthermore, the study of Carolino,et.al (2006), states that as contributed to

the findings of the past study, majority of rural banks in Batangas had been in

operation of more than 21 years. This means that those rural banks were able to

serve their client since they were able to finance the needs of those people due to

their sound capital build up. It indicates also that those rural banks are stable inspite

of the economic crisis. The result of this study differs from the other study because

on the analysis of the researchers, a bank closes down when they experience

bankruptcy because of not handling their resources properly. Specifically, this study

covers only the 6 banks operating and located in Batangas City. Included to their

respondent was Bangko Kabayan which operated for more than 50 years was now

upgraded to be a Private Development Bank.

Majority of the bank in Batangas Province is operating 20 years and below.

The reason behind this was many old banks were closed and upgraded to other

classification of banks. According to De Vera (2016) of the Philippine Daily Inquirer,

BSP ordered shutting down of rural banks due to insolvency.

1.2 Number of Employees;

 53

Table 4.1.2 presents the frequency distribution of the respondents when

grouped according to number of employees.

Table 4.1.2
Distribution of Selected Rural Banks in Terms of Number of
Employees

Number Frequency Percentage

of Employees
10 and below 28 52
11-15 12 22
16 and above 14 26
Total 54 100

Viewed from the table 4.1.2, the data shows those of the majorities of the

respondents have below 10 employees and comprised the 52 percent of the total

respondents. They are followed by those who have the 16 and above employees

with 26 percent. Lastly, respondents with 11 to 15 number of employees composed

the 22 percent of the respondents.

According to the study of Maala et. al, 13 out of 29 rural banks employed 6-15

employees for their operation who composed of frontline desk and management

desk.

As of the researcher’s analysis, majority of the rural banks are composed of

below 10 employees. This was supported by the reason that rural banks do have

small number of clients compare to those of commercial banks. One factor also is

that majority of rural banks offered 6 to 10 services. Therefore, the researcher

 54

perceived that rural banks assign one employee to a certain service. Most of the

banks focused on what their employees can do and not the number of employees

that they must employed.

1.3 Average Number of Clients per Quarter;

Table 4.1.3 presents the frequency distribution of the respondents

when grouped according to average number of clients per quarter.

Table 4.1.3
Distribution of Selected Rural Banks in Terms of Average
Number of Clients Per Quarter

Number of Clients Frequency Percentage

1000 and below 26 48

1001-1999 11 20
2000-2999 5 9
3000-3999 7 13
4000-4999 2 4
5000 and above 3 6
Total 54 100

Based on the table presented above, 48 percent of the total respondents do

have clients 1000 and below. This is followed by 20 percent which belongs to

respondents with client ranging from 1001 to 1999. Next is 13 percent of the

respondents which have 3000-3999 clients. This is followed by 9 percent with 2000-

2999 number of clients. Next is 6 percent with more than 5000 clients. Lastly, 4

percent with 4000-4999 number of clients.

 55

Based on the researcher’s analysis, the clients of rural banks specifically the

farmers and fishermen are decreasing due to different reasons. One of this was the

conversion of agricultural lands to commercial and housing areas. According to

Memorandum Circular No. 54, RA 7160, otherwise known as the Local Government

Code of 1991 (LGC), provides that cities and municipalities may reclassify

agricultural lands into non-agricultural uses within their respective jurisdictions,

subject to the limitations and other conditions prescribed under Section 20.

4.4. Geographic Location;

Table 4.1.4 presents the frequency distribution of the respondents

when grouped according to geographic location.

Table 4.1.4
Distribution of Selected Rural Banks in Terms of Geographic
Location

Geographic Location Frequency Percentage

District I 9 17
District II 6 11
District III 14 26
District IV 16 29
District V 3 6
District VI 6 11
Total 54 100
 56

The table presented above shows that the majority of respondents came from

District IV with 29 percent. This is followed by District III with 26 percent. This is

followed by 17 percent which belongs to District I. This is followed by both District II

and District VI which have 17 percent. Lastly is District V which have the 6 percent of

the total respondents.

Researcher found out that district IV which is composed of the municipality of

San Jose, San Juan, Ibaan, Rosario, Taysan and Padre Garcia was associated by

the most number of rural banks operating in the Batangas Province and also it has a

huge area of agricultural land. 16 rural banks are located and operating at this area.

This is because this rural communities are areas where there are many Small and

medium business enterprises and agricultural businesses that is the source of

employment for the vast majority of people where rural banks are known of lending

funds to those kind of business.

This is due to the fact that district IV are agricultural and fisheries is nature.

Hence, the most appropriate bank for their area is rural bank.

4.5 . Number of Services Offered

Table 4.1.5 presents the frequency distribution of the respondents when

grouped according to number of services offered.

Table 4.1.5
Distribution of Selected Rural Banks in Terms of Number of Services
Offered

Number of services Frequency Percentage

1-5 17 32
6-10 23 42
11 and above 14 26
 57

It can be viewed from the table above that the majority of the banks have 6 to

10 services with 42 percent. It is followed by 1 to 5 services with 32 percent. Lastly,

11 and more services with 26 percent.

The study of Alilio et al (2014) found out that most number of loans belong to

agricultural loan.

Rural Bank is authorised under its AFSL to provide financial product advice

about, and issue deposit and payment products. The study conducted by Atienza in

2007. Regarding the operation of rural banks reveals the operation, the deposits and

loan as well as the problem encountered and the possible solution employed by rural

banks with regards to marketing, management, technical and financial aspects. As

stated by De Castro (2008), almost all of the Rural Banks in Batangas province

offered agricultural loans and commercial loans.

Life cycle of asset management of foreclosed properties of the rural

banks be describe in terms of:

4.2.1 Plan;

Plan includes all the activities that are related to the foreclosed

properties and is used to achieve the goal of the bank.

Table 4.2.1
Assessment on Life Cycle of Asset Management of Foreclosed
Properties of the Rural Banks in Terms of Plan
 58

Plan Weighted Verbal

Mean Interpretati
on
1. Creating a plan for each foreclosed 3.83 Excellent
properties.
2. Determining the condition/status of 3.93 Excellent
foreclosed properties.
3. Planning the maintenance of the 3.70 Excellent
foreclosed properties.
4. Determining how to generate income from 3.70 Excellent
foreclosed properties while it is in the
process of disposal.
5. Assessing what maintenance should be 3.60 Excellent
given to each property per period of time.
6. Identifying the foreclosed property that is 3.70 Excellent
no longer functional.
7. Determining to which foreclosed 3.60 Excellent
properties be disposed first.
8. Regularly updating the policy about 3.69 Excellent
foreclosed property to meet the need of
market and properties.
9. Ensuring that the public trust and 3.70 Excellent
confidence about the operation of
foreclosed properties is manifested.
10. Maintaining the appropriate inventory 3.67 Excellent
level of foreclosed property.
COMPOSITE MEAN 3.71 Excellent

Data reveals that the plan of rural banks had a composite mean of of 3.71

which means that the goals set were achieved. Furthermore, this clearly presents

that all of the respondents strongly agree to the activities related to the foreclosed

properties and is used to achieve the goal of the bank. Strongly agree is observe

especially in terms of determining the condition or status of foreclosed properties

since it got the highest weighted mean of 3.93. According Anthony, et. al, for

planning purposes, it is necessary to have the data relevant for the asset such as

the types of assets in the fleet, the quantity of each type, the date of acquisition of

each, the estimated useful life of each asset type and the utilization data. The
 59

respondents strongly agree also that they created a plan for each foreclosed

properties since it got the second highest weighted mean of 3.83. According to

Moshin (2009), the core of financial management center on planning. The complex

nature of business enterprise demands that management should place greater

emphasis upon financial planning to secure and employ capital resources in the

amount and proportion necessary to increase the remaining factors of production.

Planning involves choosing a goal and developing a method to achieve that goal.

Planning is coping with uncertainty by formulating future courses of action to achieve

specified results. When you make a plan, you make a blueprint for action that

describes what you need to do realize your goals.

Respondents firmly agree that they Plan the maintenance of the foreclosed

properties, Determines how to generate income from foreclosed properties while it is

in the process of disposal, Identify the foreclosed property that is no longer

functional and Ensures that the public trust and confidence about the operation of

foreclosed properties is manifested since these four got the same weighted mean of

3.70. Asset Management plan of foreclosed properties contain description of asset

configuration, Identification of assets by category, Justification for assets, age and

condition of assets.

In contrast, the lowest weighted mean is 3.60 which pertains if the rural bank

assess what maintenance should be given to each properties per period of time and

if they determines to which foreclosed properties be disposed first. The second

lowest weighted mean is 3.67 which pertain if a rural bank maintains the appropriate

inventory level of foreclosed property. Last is the weighted mean of 3.69 which
 60

pertains to the plan of regularly updating the policy about foreclosed property to

meet the need of market and properties. Base on the rules set by the BSP Circular

No. 520, while it is a busine1ss decision on the part of banks to make the most out

of their foreclosed assets, they stressed that banks are not in the business of

managing property.

According to the bank manager of Mount Carmel, they don’t focus in giving

maintenance to each properties foreclosed. Based on the brief interview conducted,

the managers stated that there is a specific department responsible for handling the

foreclosed property of a bank. It is called ROPA which means Real and other

properties acquired.

4.2.2 Direct;

Direct are the marketing strategies implemented by the banks to

promote the disposal of foreclosed properties.

Table 4.2.2
Assessment on Life Cycle of Asset Management of Foreclosed
Properties of the Rural Banks in terms of Direct

Direct Weighte Verbal

d Mean Interpretation

1. Using the social media to inform public 2.72 Satisfactory

about foreclosed property.

2. Inviting real estate broker to dispose the 2.90 Satisfactory

property.

3. Offering competitive rate/commission for 3.20 Satisfactory

the real estate broker.
4. Regularly distributing magazines of the 3.10 Satisfactory
foreclosed property.
 61

5. Offering reasonable interest rate for loans 3.50 Excellent

of the property to be purchased.

6. Providing discount for the foreclosed 3.50 Excellent

properties.

7. Conducting brokers fair regularly to 3.30 Satisfactory

promote the foreclosed properties.
8. Offering discounts and special 3.30 Satisfactory
arrangements to avail the foreclosed
properties.
COMPOSITE MEAN 3.15 Satisfactory

The table above shows marketing strategies implemented by the banks to

promote the disposal of foreclosed properties.

The respondents strongly agree in rural bank offers reasonable interest rate

for loans of the property to be purchased and providing discount for the foreclosed

properties with the highest weighted mean of 3.50. According to bank managers,

since they have the foreclosed properties they made it available for sale and

discount was given. Discount shall be accreted over the life of the SCR by crediting

interest income using the effective interest method.  Any difference between the

present value of the SCR and the derecognized assets shall be recognized in profit

or loss at the date of sale in accordance with the provisions of PAS 18 “Revenue”

Provided, furthermore, That SCR shall be subject to impairment provision of PAS

39. The respondents agree in the strategy to conducts brokers fair regularly to

promote the foreclosed properties and bank employers are offered discounts and

special arrangements to avail the foreclosed properties since it got the second

highest weighted mean of 3.30. For the third strategy that rural bank implemented is

to offers competitive rate/commission for the real estate broker with a weighted
 62

mean of 3.20. In contrast, the lowest weighted mean is 2.72 which pertain if the rural

bank uses the social media to inform public about foreclosed property. According to

the branch manager of the Rural Bank of San Antonio, they don’t post their

foreclosed properties in social media because there will have a bad connotation in

the bank if they do that. The second lowest weighted mean is 2.90 which pertain if

rural bank invites real estate broker to dispose the property. Last is if rural bank

regularly distributes magazines of the foreclosed property with the weighted mean of

3.10. The overall composite mean of 3.15 revealed that the respondents are agreed

in the marketing strategy to promote the disposal of foreclosed properties.

4.2.3 Measure;

Measure are the activities to determine the cost associated with the

foreclosed properties of the bank and its impact to the operations.

Table 4.2.3
Assessment on Life Cycle of Asset Management of Foreclosed
Properties of the Rural Banks in Terms of Measure

Measure Weighted Verbal

Mean Interpretation
1. Calculating the cost associated w/ 3.78 Excellent
maintenance of the property.
2. Associating the cost to the 3.70 Excellent
marketing/promotional activities are measured.
3. Incurring the cost in repairing the foreclosed 3.70 Excellent
properties are also measured.
4. Incurring the amount in arranging the 3.76 Excellent
documents of the foreclosed properties are
measured.
5. Associating the cost in the shipping of 3.60 Excellent
foreclosed property/ equipment is measured.
6. Measuring the deductibility of expenses 3.67 Excellent
incurred of foreclosed property.
7. Associating the cost in selling the foreclosed 3.76 Excellent
property is properly measured.
8. Determining the current market or realizable 3.70 Excellent
 63

value of the foreclosed property based from

independent appraiser or values.
COMPOSITE MEAN 3.72 Excellent

The table above shows how banks measure the cost associated with the

foreclosed properties and its impact to the operations. Its overall composite mean is

3.72 which means that the respondents strongly agree that measuring cost

associated is very important.

The highest weighted mean is 3.78 were bank calculates the cost associated

with maintenance of the property that the respondents strongly agree. According to

BSP, bank is responsible in handling the foreclosed properties. Though they

stressed that bank is not in the business of managing property, based on managers

of the bank they should do some way to make the foreclosed properties available for

sale within the period of five years. Maintenance to properties is needed. Next, bank

measures the amount incurred in arranging the documents of the foreclosed

properties are measured and the cost associated in selling the foreclosed property is

properly measured with the weighted mean of 3.76. Real and other properties

acquired shall be booked initially at the carrying amount of the loan (i.e., outstanding

loan balance adjusted for any unamortized premium or discount less allowance for

credit losses computed based on PAS 39 provisioning requirements, which take into

account the fair value of the collateral) plus booked accrued interest less allowance

for credit losses (computed based on PAS 39 provisioning requirements) plus

transaction costs incurred upon acquisition (such as non-refundable capital gains tax

and documentary stamp tax paid in connection with the foreclosure/purchase of the

acquired real estate property): Provided, That if the carrying amount of ROPA
 64

exceeds P5 million, the appraisal of the foreclosed/purchased asset shall be

conducted by an independent appraiser acceptable to the BSP.  The third highest

weighted mean is 3.70 which pertain to measure the cost associated to the

marketing/promotional activities, cost incurred in repairing the foreclosed properties,

and current market or realizable value of the foreclosed property was determined

based from independent appraiser or values. In contrast, the cost associated in the

shipping of foreclosed property/ equipment is measured is the lowest weighted mean

of 3.60. A bank manager state that most of the collateral given by the borrower was

land and house that’s why shipping fee was not measured. There are only several

instances wherein clients used cars and other equipment and properties as

collateral. In that case, if the clients failed to comply with their obligation in the bank

and collateral given was car and other properties, shipping cost of that will be

measured. The next lowest weighted mean is 3.67 were the bank measures the

deductibility of expenses incurred of foreclosed property. In terms of direct the

overall composite mean is 3.72 were the respondents are strongly agree in the

stated marketing strategies.

4.2.4 Control;

Control are the activities conducted by the banks to conform on the target

outcomes of the previous activities.

Table 4.2.4
Assessment on Life Cycle of Asset Management of Foreclosed
Properties of the Rural Banks in Terms of Control
 65

Control Weighted Verbal

Mean Interpretation
1. Formulating several options and strategies 3.74 Excellent
to cope up with the target results.
2. Using the contingency fund of foreclosed 2.91 Satisfactory
property.
3. Amending the policy that may hinder the 3.50 Excellent
disposal of property.
4. Updating the plan for the foreclosed 3.74 Excellent
properties annually.
5. Reviewing the policies of foreclosed 3.70 Excellent
properties of the bank.
6. Monitoring individual accounts regularly to 3.72 Excellent
determine prospective intended buyers and
appropriately promotional campaigns.
COMPOSITE MEAN 3.55 Excellent

The table above shows the control in the activities conducted by the banks to

conform on the target outcomes of the previous activities.

The highest weighted mean is 3.74 which pertains to rural banks formulates

several options and strategies to cope up with the target results and updates the

plan for the foreclosed properties annually. Management control refers to setting of

predetermined standards, comparing actual performance with these standards and,

if required, taking corrective actions to ensure the achievement of organizational

goals.

The second highest weighted mean is 3.72 which pertains to rural banks

monitors individual accounts regularly to determine prospective intended buyers and

appropriately promotional campaigns. According to the bank managers, it is very

self-explanatory that every business has to monitor their clients specifically in banks.

They monitor every account if clients were paying their loans regularly. And the last

highest weighted mean is 3.70 which pertains to rural banks review the policies of
 66

foreclosed properties of the bank. The BSP regularly releases memorandum

pertaining with the rules and regulation the bank must follow. In contrast, the lowest

weighted mean is 2.91 which pertain to rural banks use the contingency fund of

foreclosed property. Claims arising from deficiency judgments rendered in

connection with the foreclosure of mortgaged properties shall be lodged under the

real account “Deficiency Judgment Receivable”; while probable claims against the

borrower arising from the foreclosure of mortgaged properties shall be lodged under

the contingent account “Deficiency Claims Receivable”.

Last is rural banks amends the policy that may hinder the disposal of

property with the weighted mean of 3.50. The overall composite mean is 3.55

indicates that the respondents is strongly agree in the activities above. Controlling is

monitoring progress toward goal achievement and taking corrective action when

progress isn’t being made.

Control in management means setting standards, measuring actual

performance and taking corrective action. Control loss occurs when behaviour and

work procedure do not conform to standards.

Significant difference on the asset management of foreclosed properties

when rural banks grouped according to profile

Table 4.3.1
Difference on the Assessment of the Respondents on the Asset
Management of Foreclosed Properties in terms of Years of Operation

Variables p-values Computed Decision on Ho Verbal

f-values Interpretation
Plan .70 .60 Failed to Reject Not Significant
Direct .40 1.05 Failed to Reject Not Significant
Measure .86 .38 Failed to Reject Not Significant
 67

Control .34 1.17 Failed to Reject Not Significant

Table shows that the p-value for Plan is 0.70 in terms of years of operations,

for Direct is 0.40, Measure is 0.86 and Control is 0.34. Since all p-values for the life

cycle of asset management are higher than 0.05 which is the level of significance,

this means that the statistical decision is failed to reject the null hypothesis. Thus it is

concluded that there is no significant difference on the banks assessment on the

asset management of foreclosed properties in terms of years of operation.

Based on the analysis of the researchers, there is no significant difference in

the asset management of the foreclosed properties of rural banks in terms of plan,

direct, measure and control. It doesn’t matter if the bank is operating for a longer or

shorter period of time.

The result of this study differs from the other study because on the analysis of

the researchers, a bank closes down when they experience bankruptcy because of

not handling their resources properly. Majority of the bank in Batangas Province is

operating 20 years and below. The reason behind this was many old banks were

closed. According to De Vera (2016) of the Philippine Daily Inquirer, BSP ordered

shutting down of rural banks due to insolvency.

The study of Abarquez , et.al (2006) entitled “ An Analysis in the Banking

Operation of Selected Rural Banks in Batangas City”, revealed that selected rural

banks do not differ significantly in the nature of their day to day operation relative to

the length of time in operation, official banking hours, official working days as well as

in computerization system.
 68

Table 4.3.2
Difference on the Assessment of the Respondents on the Asset
Management of Foreclosed Properties in terms of Employees

Variables p-values Computed Decision on Ho Verbal

f-values Interpretation
Plan .66 .42 Failed to Reject Not Significant
Direct .81 .21 Failed to Reject Not Significant
Measure .89 .12 Failed to Reject Not Significant
Control .70 .37 Failed to Reject Not Significant

It can be denoted from the table that in terms of employees the p- value for

plan is 0.66, Direct is 0.81, Measure is 0.89 and Control is 0.70. Since all p-values

for the life cycle of asset management are higher than 0.05 which is the level of

significance, this means that the statistical decision is failed to reject the null

hypothesis. Therefore there is no significant difference on the banks assessment on

the asset management of foreclosed properties in terms of number of employees.

Based on the researcher’s analysis, there is no significant difference on the

asset management of foreclosed properties of rural banks in terms of number of

employees because there are certain department assigned to each employee to

make sure that the qualification of the client for the services were meet by the banks.

Based on study entitled “A study on the Efficiency in Asset Utilization of

Selected Rural Banks in Batangas City” (Cardino,et.al 2006), these banks employed

5 – 21 employees and the highest market share attained was a rate of 37%. The

level of efficiency of asset utilization of these rural banks had been measured base
 69

from the rate of their returns and not with the number of employees which concluded

that effective use of assets help generate income that efficient utilization of assets

can be determine it, measuring the profitability base on the performance which can

be applied in different types of firm.

Table 4.3.3
Difference on the Assessment of the Respondents on the Asset
Management of Foreclosed Properties in terms of Number of Clients

Variables p- Computed Decision on Ho Verbal

values f-values Interpretation
Plan .55 .81 Failed to Reject Not Significant
Direct .55 .81 Failed to Reject Not Significant
Measure .64 .68 Failed to Reject Not Significant
Control .21 1.50 Failed to Reject Not Significant

It can be viewed from the table above that in terms of number of clients, the

p- value for plan and for direct is 0.55, measure is 0.64 and control is 0.21. Since all

p-values for the life cycle of asset management are higher than 0.05 which is the

level of significance, this means that the statistical decision is failed to reject the null

hypothesis. Therefore there is no significant difference on the banks assessment on

the asset management of foreclosed properties in terms of number of clients.Based

on the researcher’s analysis, there is no significant difference on the asset

management of foreclosed properties of rural banks in terms of number of clients.

In one famous example, a pound of Antonio’s flesh collateralized Shylock’s

loan to Bassanio in Shakespeare’s “Merchant of Venice.” Generally, the term

collateral refers to assets pledged by a borrower to secure a loan. The lender can
 70

seize these assets if the borrower does not make the agreed-upon payments on the

loan, so the lender has some protection if the borrower defaults.

Therefore, the use of collateral can make it easier for firms to obtain loans to

finance their investments. Aside from it, the asset management of foreclosed

property is the same even there are many or few foreclosed properties.

According to the study of Maala and Mangundayao et. al, “Assessment on the

Adequacy of the Banking Facilities of Selected Rural Banks in District IV, Batangas”,

majority of the respondents have a large number of depositors which is 1001 and

above. It means that despite of competition from commercial and thrift banks people

in the rural area still prefer the different services of rural banks. And since most rural

bank are operating for a longer time they are now able to get a lot of customer.

One of the respondent stated that “Having a large number of depositors, it’s a

great advantage for us from other banking institutions because those funds coming

from them could be used to finance our different services. It also help us to generate

more reserves that we can use anytime”.

Table 4.3.4
Difference on the Assessment of the Respondents on the Asset
Management of Foreclosed Properties in terms of Geographic Location

Variables p-values Computed Decision on Ho Verbal Interpretation

f-values
Plan .24 1.42 Failed to Reject Not Significant

Direct .29 1.27 Failed to Reject Not Significant

Measure .51 .87 Failed to Reject Not Significant

Control .26 1.34 Failed to Reject Not Significant
 71

The data above shows that in terms of geographic location, the p value for

plan is 0.24, direct is 0.29, measure is 0.51 and control is 0.26. There is no

significant difference on the banks assessment on the asset management of

foreclosed properties in terms of geographic location because the p values are all

higher than the level of significance which is 0.05.

Based on the researcher’s analysis, there is no significant difference on the

asset management of foreclosed properties of rural banks in terms of geographic

location. It is for the reason that banks do have their branches in every district and

banks are readily accessible to people of rural areas.

As stated in the Status Report on the Philippine Financial System 2 nd

Semester of 2008, rural banks situated in CALABARZON area including Batangas

still led in terms of highest assets, loan portfolio, deposit liabilities and capital

accounts. The said area is of industrialized estates and housing zone and an

economic model with effective combination of cutting edge manufacturing hub,

highly productive agricultural sector and fast growing micro, small and medium scale

enterprises. Since Bangko Sentral contributed to the growth of microfinance

institutions through its intensified lending programs.

The rapid expansion of the banking system after 1949, as acknowledged by

the Central Bank, can attribute to the challenging demand of the Philippine economy

at that time. As the economic activities of the country expanded, the establishments

of more banks became necessary to meet the increasing material needs of the

country’s rapidly growing population. Also the provision of prefer investment

 72

incentives and inducements contributed to the growth of the industry. The Congress

introduced new types of banks to promote and expand the economy. Meanwhile, the

government by pronouncement and regulation also encourage the private sector to

establish new bank head offices and branches where these new offices would

contribute to more effective mobilization of savings and enhance the banking habit

among businessmen and the general public. Lastly, the expansion of the banking

system can also be imputed to the acceptance of the challenge by Filipino

entrepreneurs.

Table 4.3.5
Difference on the Assessment of the Respondents on the Asset
Management of Foreclosed Properties in Terms of Number of Services

Variables p-values Computed Decision on Ho Verbal Interpretation

f-values
Plan .95 .06 Failed to Reject Not Significant
Direct .84 .17 Failed to Reject Not Significant
Measure .29 1.29* Failed to Reject Not Significant
Control .40 .92 Failed to Reject Not Significant

The data above shows that in terms of number of services, the p value for

plan is 0.95, direct is 0.84, measure is 0.29 and control is 0.40. There is no

significant difference on the banks assessment on the asset management of

foreclosed properties in terms of number of services because the p values are all

higher than the level of significance which is 0.05.

 73

Based on the researcher’s analysis, there is no significant difference on the asset

management of foreclosed properties of rural banks in terms of services offered. It is

for the reason that banks do have same services offered.

Implication of the findings to the bank operations

 74

Table 4.4.1 shows the implication of the findings to the bank operation

CHAPTER V

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

This chapter presents the summary of the study, findings, the conclusion, and

recommendations of the study.

Summary

The study was intended to assess the asset management of foreclosed

property of rural banks in Batangas using life cycle approach. Research

triangulation was used. The paper assesses and describes the life cycle of asset

management of foreclosed properties of rural banks in terms of plan, direct,

measure and control. The respondents of the study were the 56 rural banks

located and operating in the entire province of Batangas represented by the

bank managers. Convenience sampling will be used in the study because the

respondents will be easy to reach. Questionnaire was used and distributed to

targeted respondents. The researchers-made questionnaire is the primary data

gathering instrument that will be used to elicit the responses on the problems

posted for the study.

The study determines the profile of the respondents in terms of years of

operation, number of employees, average number of clients per quarter,

 75

geographic location and number of services offered. Percentage and frequency

were used as statistical tool.

The study describes the life cycle of asset management in terms of plan,

direct, measure and control. Weighted mean and composite mean were used as

the statistical tool.

The study determines if there is significant difference on the asset

management of foreclosed properties when grouped according to profile. One

way analysis of variance and brown forsythe were used as statistical tool.

Lastly, the researches aimed to know the implication of the findings to the

bank operation.

Findings

Based on the gathered data, the following significant findings were revealed

on this study.

1. It aimed to determine the profile of the rural banks in Batangas Province

according to years of operation, number of employees, average number of

clients per quarter, geographic location and number of service offered, it is

found out that the few of the rural banks operates for more than 61 years and

have the total number of employees ranging from 11-15 people. Few banks

have 4000-4999 numbers of clients per quarter 1-5 numbers of services

offered. And few banks were located in District V.

2. The study assess the life cycle of asset management of the rural banks which

includes plan, direct, measure and control. The proponents found out that
 76

rural banks often assess the maintenance that should be given to each

property per period of time and they often determine which foreclosed

properties should be disposed first. They do not usually uses the social media

to inform the public about the foeclosed property that they do have. The cost

associated in the shipping of foreclosed property or equipment was not

usually measured. Lastly, they don’t agree using the contingency fund of

foreclosed property.

3. The study determines if there is significant difference on the asset

management of foreclose properties when rural banks grouped according to

profile. There is no significant relationship on the asset management of

foreclose properties when rural banks grouped according to profile.

4. Rural banks would experience hard time in selling foreclosed properties if

they do not plan the maintenance of each foreclosed properties and it would

not be appropriate if they do not identify what foreclosed properties be

disposed first. Rural banks do not advertise well the foreclosed properties

which were available for sale. Rural banks would not identify if the intended

cost for the shipping is appropriate. Rural banks reserve money is intended

for other future expenses of the bank.

Conclusion

1. The rural banks in the province of Batangas are operating below 20

years composed of below 10 employees, with 1000 clients and below,

mostly located in District IV and offers 6 to 10 services.

 77

2. Rural banks in Batangas province determines the condition/status of

foreclosed properties, offers reasonable interest rate for loans of the

property to be purchased and provides discount for the foreclosed

properties, calculates the cost associated w/ maintenance of the

property, formulates several options and strategies to cope up with the

target results and updates the plan for the foreclosed properties

annually.

3. There is no significant difference on the asset management of

foreclosed properties when rural banks are grouped according to

profile.

Recommendation

After careful analysis and interpretation of the data gathered, the

researchers have arrived and posted the following recommendation:

1. Rural banks should continue to determine the condition/status of

foreclosed properties as well as create a plan for each foreclosed

properties.

2. To those banks who do not strongly agree in assessing the

maintenance for every foreclosed property, they should allocate time

and fund in doing that because it would attract buyers.

3. They should use social media to inform public about foreclosed

properties. Since BSP posted about it already, it would not destroy the

image of the bank anymore. Nowadays, technology and the use of

different social medias is in demand, people can easily access the list
 78

of properties available for sale if they posted it through their website or

facebook account.

4. Rural banks should monitor the cost associated in the shipping of

foreclosed property/ equipment to identify the total expenses incurred

and to compute for the profit or loss.

5. Rural banks need to continue formulating several options and

strategies to cope up with the target results. And they should update

the plan for the foreclosed properties annually.

6. They should not use their contingency fund to cover the expenses

incurred in the asset management of foreclosed properties.

 79

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