EDITORIAL - Loss of confidence

Trust is indispensable in the banking and pre-need industries. This has been eroded by the collapse of the Legacy Group of rural banks and pre-need companies, whose victims include farmers, soldiers and police personnel. Apart from the Legacy mess, other banks and pre-need companies have folded up or been shut down in recent months amid the global financial crisis.

The latest to fall are the pre-need firm Permanent Plans and the Baguio-based Accord Savings Bank Inc. Accord, a thrift bank with nine branches, has become insolvent and must be placed under receivership, according to the Bangko Sentral ng Pilipinas. Meanwhile, Permanent Plans, controlled by the Madrigal-Vazquez clan, was ordered by the Securities and Exchange Commission last Monday to stop selling pre-need plans. Company president Juan Miguel Vazquez, who also heads the Philippine Federation of Pre-need Plan Companies Inc., said the firm in fact stopped selling pre-need plans as early as Feb. 5 although it informed the SEC about it only on March 18. The SEC order came on the heels of a similar one issued to Prudentialife Plans.

Rural bankers have already expressed concern over the fallout from the Legacy mess, and are working with regulators to implement reforms that will strengthen their sector. Other banks as well as companies that are still in the pre-need business must also do something to restore public trust in their products and services.

Despite the financial crisis, most people are expected to keep their money in banks, mainly because there is nowhere else to stash away piles of cash. This is especially true in the Philippines, where prudent investment policies have spared banks from the worst of the crisis. Those vulnerable to the loss of public confidence that has weakened banks in many other countries are the smaller banks, whose clients could decide to transfer their money or deal only with bigger, established companies. That same loss of confidence could lead to the collapse of the pre-need industry unless drastic measures are done to restore public trust.