BSP may allow foreigners to invest in rural banks

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is open to the idea of allowing foreign investors to buy into rural banks to give the industry a much needed shot in the arm.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that RA 7353 or the Rural Banking Act of 1992 that limits 100 percent ownership of rural banks to Filipinos should be amended.

“The point is there should be amendment to the law but I think it is not a bad idea,” he added referring to allowing foreigners to invest in rural banks.

Earlier, the 645-strong Rural Bankers Association of the Philippines (RBAP) called for the amendment of the 17-year-old law to allow foreign equity infusion.

Industry players wanted to allow up to 40 percent foreign ownership in rural banks to boost the capitalization of the industry.

Espenilla said rural banks are attractive to foreign investors who can improve the industry’s small scale operations by providing much needed capital and technology.

“Foreign investors can provide them possible access to capital and also technology. The challenge right now to rural bank is their small scale operations that make it hard for them to develop technology on your own,” he added.

The BSP and the state-run Philippine Deposit Insurance Corp. (PDIC) are rushing the guidelines of the P5-billion incentive scheme to spur mer-gers and consolidations of rural banks.

The Strengthening Program for Rural Banks (SPRB) would provide a P5-billion fund to enable the industry sustain countryside development and maintain financial stability in the economy as well to ensure long-term viability of rural banks.

The PDIC has been pushing for the immediate liquidation of closed banks instead of undergoing rehabilitation as only four out of 511 closed banks have successfully been rehabilitated.

PDIC is currently managing 511 closed banks under receivership and liquidation of which only four have been rehabilitated. Of the 81 banks that were ordered closed by the Monetary Board, 27 applied for rehabilitation but failed from 2005 to September 2009.