Groups of small banks planning to consolidate

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STATE-DEPOSIT insurer Philippine Deposit Insurance Corp. (PDIC) said the two-year program that aims to strengthen the operations of rural banks in the country by encouraging them to consolidate is gaining interest from small lenders.

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PDIC president Cristina Orbeta said over the weekend that eight groups of small banks have already expressed their interest to consolidate under the Consolidation Program for Rural Banks (CPRB), which has a two-year timeframe running from August 25, 2015 to August 25, 2017.

The CPRB—a program jointly conceptualized by the central bank, the PDIC and the Land Bank of the Philippines—seeks to enable rural banks to improve their financial strength, enhance their viability, strengthen management and governance, generate synergies and economies of scale through common infrastructure systems and resources; and expand their market reach.

“What we are trying to do is to get them to group amongst themselves and to make the business decision to consolidate, so they have to invite banks within their vicinity,” she said.

Orbeta explained that the agencies behind the program have met with several groups of banks within the same area, or those one- to two-unit banks, encouraging them to consolidate so that they can become mid-sized banks with a minimum capitalization of P100 million.

“A lot of banks have manifested interest. In fact we have met with eight groups, and we’re hoping that they can consolidate so that they can be more resilient, flexible and viable and make sure that within the next two or three years, they can compete in a very competitive banking system,” she added.

The PDIC chief said the eight groups of small lenders are in varying stages of agreement and that one group is already in the advanced stages of negotiations and may file their application in January.

“The program involves giving technical assistance to the banks for valuation because if you are going to involve five banks, they need to be able to know how much [will be]the share-swap agreement. They have to understand that there is a common valuation process so that no on one gets ahead of everyone, and that valuation process is the one that will be funded by grant,” she said.

Recently, the central bank released the implementing guidelines for the CPRB that sets out the eligibility requirements for proponent banks, the procedures for application and the related documentary requirements, the program support and regulatory incentives.

To avail of the program, proponent banks or participating rural banks must submit letters of intent/application certified by their boards and shareholders to PDIC.

Any group of at least five proponent banks — the head offices or majority of the branches of which are preferably located in the same region or area, and whose consolidation or merger would result in a surviving bank with a capital adequacy ratio of 12 percent and a combined unimpaired capital of at least P100 million – are eligible.

If the banks are strengthened under the program, there will be fewer bank closures and there will be more banks that would cater to the needs of the unbanked and unserved, she said.

This year, the Monetary Board has closed down and placed 14 banks under PDIC receivership, a slight improvement from the 15 closed banks in 2014.

“Through the program, our objective also of promoting financial inclusion to get these banks to have presence in the smaller communities will be achieved,” she added.

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