PDIC eyes P5-billion support fund for rural bank consolidation

MANILA, Philippines - The Philippine Deposit Insurance Corp. (PDIC) is proposing a P5-billion financial assistance and regulatory support facility for rural banks seeking to consolidate their ranks.

PDIC, however, will still need to secure the approval of the Bangko Sentral ng Pilipinas (BSP), the principal banking sector regulator, for the incentive package.

PDIC president Jose C. Nograles said there is a need for a stronger, yet leaner rural banking system to sustain countryside development and maintain financial stability in the economy.

“PDIC encourages the rural banks to merge and consolidate. By providing the rural banks the necessary incentives, it is hoped that the rural banks’ long-term viability will be enhanced,” he said.

Nograles said the plan will provide incentives to be made available for two years from a pooled fund.

The financial assistance under the incentive program will be a combination of preferred shares and direct loan to boost the capital of the bank. The preferred shares will be non-voting, cumulative and convertible to common shares, redeemable at the end of the fifth year, but not later than the 10th year.

Rural banks that are eligible for the incentive program are those whose risk asset-ratio (RAR) is less than 10 percent and are merging or consolidating with an eligible strategic third-party investor (STPI) or a “white knight.”

The PDIC said by encouraging rural banks to merge and consolidate, these institutions can attain economies of scale, achieve higher lending capacities and improve the quality of their banking services particularly in their niche markets thus, help ensure the efficiency and effectiveness of rural banks in mobilizing savings and investments toward a robust economy particularly in the countryside.

“We are confident that our partnership with the BSP to assist rural banks through the proposed rural bank strengthening program will result to a more accessible and resilient banking system,” Nograles said.

The BSP issued recently a circular which outlined guidelines on mergers and consolidation. One of its features is that the BSP and the PDIC will be directly involved in overseeing mergers, acquisition and consolidations.

However, the BSP circular remained vague on the extent of incentives being offered for the white knight.