Analysis of the Relationship Between Agricultural Damages and Losses and Rural Banking Fragility in the Philippines, 2010-2023

Date

6-2026

Degree

Bachelor of Science in Agricultural Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Ruby Jane C. Estadilla

Committee Member

Geny F. Lapiña, Maria Angeles O. Catelo

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Abstract

The 2024 World Risk Index ranked the Philippines as the number one disaster risk hotspot worldwide. For a predominantly agricultural economy whose rural communities rely on local banks for financial services, the frequency and magnitude of such disasters raise a concern about the extent of this exposure to banking vulnerability. This study analyzed the impact of agricultural damages and losses on the banking fragility of the Philippine rural bank sector from 2010 to 2023. Secondary national-level quarterly time- series data were obtained from the Department of Agriculture, the Bangko Sentral ng Pilipinas, and the Philippine Statistics Authority. To operationalize banking fragility, a Rural Banking Fragility (RBF) index was constructed based on Kibritçioglu's (2003) framework, combining standardized annual changes in the Total Loan Portfolio, Loan-to- Deposit Ratio, and Net Interest Margin as proxies for credit, liquidity, and market risk, respectively. The relationship between economic measures of agricultural disaster impacts–expressed through production value losses, volume losses, and affected area–and the RBF index was estimated using a preliminary Ordinary Least Squares model and an Autoregressive Distributed Lag (ARDL) model with bounds testing.

The study found that the RBF index exhibited sectoral fragility cycles across the rural banking sector throughout the sample period, with fragility episodes persisting across multiple quarters before recovering. Contrary to the initial hypothesis, agricultural damages and losses were statistically insignificant across all three disaster proxies both in the short- and long-run ARDL model specifications. However, the error correction term confirmed cointegration among the variables, revealing that approximately 52 percent of any sectoral disequilibrium is corrected within the succeeding quarter.

In the analysis of long-run equilibrium determinants, inflation rate exerted a positive and statistically significant long-run influence on fragility, the Cost-to-Income Ratio and Capital Adequacy Ratio were identified as the most statistically significant variables, with the Cost-to-Income Ratio exhibiting a strong negative relationship consistent with expense preference behavior.

It was concluded that the Philippine rural banking sector maintains structural insulation against localized physical climate shocks, likely driven by mandated loan restructuring programs, institutional support through loan guarantees and credit risk management, and portfolio diversification across borrower segments. Ultimately, aggregate rural banking fragility is systematically more heavily dictated by long-run macroeconomic pressure and internal operational inefficiencies.

Based on the findings of the study, the following were recommended: a) employ the RBF index as a diagnostic measure; b) promote cost-rationalization across rural banks; c)understand the contextual dynamics of inflation and rural banking; d) monitor the rate- setting behavior of rural banks; e) fortify institutional risk transfer mechanisms; and f) align post-disaster interventions with the system’s 6-month recovery window.

Language

English

Location

UPLB College of Economics and Management (CEM)

Call Number

LG 993.5 2026 A14 C37

Notes

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Award: B.M. Gonzales Best Thesis in Agricultural Policy

Document Type

Thesis

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