BSP seeks to boost rural banks’ competitiveness

MANILA, Philippines – With a new banking law expected to attract more big foreign banks into the country, the Bangko Sentral ng Pilipinas is considering unifying two programs to improve the competitiveness of vulnerable rural banks.

The central bank is studying changes to the Strengthening Program for Rural Banks (SPRB) Plus so that it could be consolidated into the Comprehensive Program for Rural Banks (CPRB), said BSP Deputy Governor Nestor Espenilla Jr.

“There could be possible modifications (to the SPRB Plus) because of the CPRB. What could happen is instead of extending it maybe it could be unified into that. This is now being discussed,” he explained.

The SPRB Plus is an enhanced version of the original SPRB program launched in 2010 exclusively for rural banks.

The original program expired last December after a one-year extension that added refinements was approved by the BSP and the state-run Philippine Deposit Insurance Corporation (PDIC). 

CPRB

The new CPRB program, created with the help of the PDIC and the Land Bank of the Philippines, also aims to enhance the viability of rural banks. The BSP issued the implementing guidelines for it and other requirements just last month. The program is set to run until August 25, 2017.

One of the key facets of the CPRB is to encourage consolidations and mergers among rural banks so there would be a less fragmented banking system.

Consolidating would enable rural banks to improve governance and financial strength; enhance viability; strengthen management; generate synergies and economies of scale through common infrastructure, systems and resources; as well as expand their market reach, the BSP said earlier.

Under the program, a group of at least 5 opponent banks with head offices or majority of branches located in the same region or area that would consolidate into one surviving rural bank with a capital adequacy ratio (CAR) of at least 12% and a combined unimpaired capital of at least P100 million ($2.079 million) would be entitled to incentives.

If the minimum CAR and unimpaired capital are not met, existing shareholders of the proponent banks or of a third-party investor should infuse additional fresh capital to meet the program’s minimum capital requirement.

Qualified rural banks would be entitled to funding assistance such as financial advisory services, business process improvement services, and capital building support services.

Banks would also be entitled to regulatory incentives.

The Countryside Financial Institutions Enhancement Program (CFIEP) has set aside P25 million ($520,531) to support the financial advisory, business process improvement, and capacity-building support services necessary to ensure the program’s objectives can be met.

Competition from foreign banks

The BSP is aiming to strengthen rural banks as the new law allowing the full entry of foreign banks, or Republic Act No. 10641, is expected to intensify competition in the country.

This is especially so considering the country’s strong economic growth amid slowdowns elsewhere in the region.

“There are very few growth areas in Asia. For example, it is quite logical that foreign banks are looking at the Philippines because their home markets are stagnant,” Espenilla said.

He also revealed another Asian bank has expressed interest in the Philippines following the passage of the new law.

So far, 6 foreign banks have set up shop in the Philippines. These are Sumitomo Mitsui of Japan, Cathay United Bank of Taiwan, the Industrial Bank of Korea, Seoul-based Shinhan Bank, Yuanta Bank of Taiwan, and United Overseas Bank (UOB) of Singapore.

Foreign banks are now allowed to own as much as 100% of any Philippine bank, removing the previous cap of 60%.

More foreign banks are also likely to enter into strategic partnerships with local banks following The Bank of Tokyo-Mitsubishi UFJ, Ltd acquiring a 20% stake in Security Bank Corporation in a deal worth P36.9 billion ($767 million). – Rappler.com

$1 = P 48.04