Consolidation for strength

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Rural banks welcomes the central bank’s plan to consolidate its incentives programs in its goal to further strengthen the industry.

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The possible modifications to the Strengthening Program for Rural Banks (SPRB) Plus that could be folded into the Comprehensive Program for Rural Banks (CPRB) are seen as a good plan to rescue problematic banks and minimize closures within the rural banking industry.

“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,” BSP Deputy Governor Nestor Espenilla Jr. said in a report.

Right now, some of the smaller member rural banks are having issues with succession, management and capitalization. Hence, to save the operations of these banks, the Rural Bankers Association of the Philippines is regularly in talks with the Philippine Deposit Insurance Corporation and the Bangko Sentral ng Pilipinas to request technical support.

Earlier this year, some rural banks pondered the program of the central bank that seeks to encourage consolidations and mergers among rural lenders. The CPRB seeks to bring about a less fragmented banking system through consolidations and mergers by enabling rural banks to improve their governance and financial strength, enhance their viability, strengthen management, generate synergies, as well as expand their market reach.

Entitled to the incentives are any group of at least five proponent banks with head offices or majority of branches located in the same region or area that consolidate, resulting in a surviving rural bank with a capital adequacy ratio (CAR) of at least 12 percent and a combined unimpaired capital of at least P100 million.

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

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

There are already eight groups of rural banks in talks over possible mergers as part of the program.

Meanwhile, the SPRB Plus has granted participating banks financial assistance, regulatory relief and other incentives to strengthen the rural banks and thrift banks serving the countryside and the low-income sector.

Under the program, the BSP and the PDIC have approved seven merger/consolidation applications involving 14 banks as of end-December 2014.

RBAP works to maintain banking standards across all rural banks and guides members to further reinforce the industry. Instead of smaller banks ending up as a failure or closed down by the PDIC, it is better to strengthen them as they band together.

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