BSP to revive incentives for bank mergers, acquisitions

The Bangko Sentral ng Pilipinas (BSP) is planning to revive incentives for mergers and acquisitions and add even more perks to encourage further consolidation in the banking industry.

The incentives offered by the BSP had expired in February last year but monetary officials said there were moves to reinstate them as well as develop new incentives to make mergers and acquisitions more attractive.

In the past, merging banks were entitled to a package of incentives including the staggered booking of their reserves over a five-year period as well as exemption from the 20-percent and 30-percent limitations on voting stockholdings in the new or surviving entity.

If the merged bank was unable to comply with the prescribed net worth to risk assets ratio, the Monetary Board is allowed to temporarily relieve the bank from full compliance with the requirement.

However, BSP officials said these incentives, along with the other incentives offered in the past, might not be enough to encourage further consolidation in the banking industry.

"If we use the same incentives it may not work," said BSP Deputy Governor Alberto Reyes. "We have to find more to encourage mergers," he said.

The last merger in the banking industry was when Metropolitan Trust and Banking Corp. (MetroBank) absorbed its subsidiary, Global Bank. On the other hand, the last acquisition approved by the BSP was the buy-in of the Bank of Commerce into Traders Royal Bank late last year.

The industry has been plagued by rising bad loans and this has been scaring off foreign banking groups and even local ones, despite the proliferation of bargain buys.

Moreover, the banking industry is also waiting for Congress to pass the Special Purpose Asset Vehicle (SPAV) bill that would detail the regulatory framework for the rehabilitation of bad assets held by banks.

The SPAV bill is expected to help banks improve their portfolio since it would allow them to sell their non-performing loans to asset management companies that would then be responsible for repackaging and turning them around.

The bank would have to sell these bad loans at a discount but it would vastly improve their portfolio rather than carrying bad loans indefinitely.

The BSP said that if more incentives were offered to banks, the industry could be encouraged to consolidate, thus preventing the imminent collapse of smaller, less sturdy banks.

In the past, the BSP has allowed the condonation of liquidated damages and/or penalties on loan arrearages to the BSP of rural banks which are parties to the merger or consolidation.

The BSP also allowed the installment payment of outstanding penalties in legal reserve deficiencies and interest on overdrafts with the BSP as of the date of the merger or consolidation.

Merging banks were further given access to rediscount ceiling of 150 percent of adjusted capital accounts for a period of one year, reckoned from the date of merger or consolidation provided the merged/consolidated bank meets the required net worth to risk assets ratio and all of the other requirements for rediscounting.