BSP to expand P5-B rural bank consolidation program

BSP to expand P5-B rural bank consolidation program


By Lawrence Agcaoili, The Philippine Star
Posted at 04/24/2011 7:09 AM
Updated as of 04/24/2011 2:36 PM


MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is looking at the possibility of expanding a P5-billion program that encourages mergers and consolidation currently limited to rural banks to cover other “small” banks.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that monetary authorities are eyeing the expansion of the coverage of the Strengthening Program for Rural Banks (SPRB) that was launched August last year.

“There are ongoing discussions in that area. There are talks to cover or expand SPRB to other small banks,” Espenilla stressed.

He did not elaborate on the planned expansion saying the BSP is still looking at how to improve the SPRB.

“This a great idea to change the financial market. We strive for banks that can adequately give quality credit and service,” he added.

The BSP and state-run Philippine Deposit Insurance Corp. (PDIC) launched the SPRB last Aug. 4. It involves a P5-billion financial assistance as well as grant of regulatory relief by the PDIC and BSP over a period of two years or until 2012 and intends to encourage mergers and consolidations of rural banks to further strengthen the rural banking system.

Rural banks qualified to join the program are those whose risk based capital adequacy ratio (CAR) fall below the BSP required 10 percent and those that are merging or consolidating with an eligible STPIs.

Third party investors that are qualified to join the SPRB include those that are not under the central bank’s prompt corrective action (PCA) program and those that are not engaged in unsafe and unsound banking practices. Furthermore, the STPIs should have a CAMELS (capital adequacy, asset quality, management quality, earnings, liquidity, sensitivity to market rating) of at least “3.”

The P5-billion financial assistance covers the equity component in the form of preferred shares equivalent up to 50 percent of additional capital required to bring the CAR to the eligible level of 10 percent and should have a dividend rate equal to five-year fixed rate Treasury notes.

The shares should also be non-voting, cumulative, and convertible to common shares and should be redeemable starting the fifth year but not later than 10th year from the issuance of the preferred shares.

The direct loan component of the financial assistance covers the principal amount equal to such amount that would allow the merged or consolidated rural bank to earn a net interest spread over loan tenor and involved an effective interest rate of governmnent securities purchased using loan proceeds less three percent.

On top of the financial package, the BSP agreed to extend regulatory relief to those who would participate in the program including the waiver of the monetary penalties imposed of eligible rural banks for violations of existing laws and BSP rules and regulations as well as the condonation of liquidated damages on past due rediscounting or emergency loans as of the end of the month immediately preceding the data of request for loan restructuring.

Other sweeteners include the restructuring of past due rediscounting or emergency loans of the eligible rural banks with the BSP subject to the compliance on the guidelines of amount to be restructured, interest rate, terms of repayments, collateralization, default clause, and documentary requirement.

Other incentives include preferred shares for staggered redemption as well as the rediscounting ceiling of at least 150 percent of adjusted capital accounts of the merged rural bank for a period of one year.

The BSP and PDIC also signed an agreement to harmonize their procedures to expedite the evaluation process for mergers and acquisitions of banks to further strengthen the country’s financial system.

Latest data showed that the number of banks retreated by 27 to 758 last year from 785 in 2009 due to mergers as well as the closure of some banks. The number of universal and commercial banks was steady at 38 followed by thrift banks with 73 while the number of rural banks fell to 647 from 674.

The data showed that the operating network including branches of the banking system inched up by 2.9 percent to 8,869 last year from 8,620 in 2009 reflecting mainly the increase in commercial and rural banks’ branches or agencies.

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