PDIC backs incentives for mergers and acquisitions

MANILA, Philippines - The Philippine Deposit Insurance Corp. (PDIC) is favoring the grant of incentives to banks planning to go into mergers and acquisitions (M&A) or consolidation, its top executive said yesterday.

PDIC president Jose C. Nograles told The STAR that they have been approached by several rural banks regarding M&A options, particularly on possible incentives from the monetary regulators to make the process profitable for both the acquiring or consolidating banks.

He said government, in fact, is inclined towards offering new incentives or reviewing existing regulations granting perks for M&As.

“Another option is for government to review the Countryside Financial Institutions Enhancement Program (CFIEP) for amendments, or altogether replace it with a new program,” Nograles pointed out.

Among the outlined incentives in the CFIEP are the waiver of penalties and other charges due on arrearages, exemptions from the 40-percent limitation of voting stockholders, and access to capital infusion.

Recently, the Bangko Sentral ng Pilipinas (BSP) issued Memorandum 2009-028 outlining new procedures and requirements for mergers and consolidations for all banks and non-bank financial institutions.

One critical provision in the circular issued last week states that all documentary requirements must be submitted to both the BSP and the PDIC.

Tightening of banking regulations, both domestically and in the international market, may force more banks to close shop, or take the M&A and consolidation route.

The BSP earlier said the country’s more than 700 rural banks could be reduced to half, although their combined capital base would increase.

The Rural Bankers Association of the Philippines (RBAP) also said they want to accelerate the natural consolidation process among rural banks.

Former RBAP president Tomas S. Gomez IV noted that the consolidation of the country’s banking sector has been going on for the past three years.

“But they have been few and far between. We want the process to accelerate but we need the help of the regulators,” Gomez said.

The RBAP claims there are only as many as eight banks that consolidate or merge every year.

The PDIC, meanwhile, said that more than 10 rural banks are placed under receivership every year.

This year, a total of 17 banks have been placed under receivership - two are thrift banks and the rest are rural banks, excluding banks associated with the failed Legacy Group.