BSP okays P5-billion fund for rural banking strengthening

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) said the strengthening of the rural banking industry is set to take off after monetary authorities approved the modality of the contribution of the central bank on the P5 billion fund.

BSP officer-in-charge Nestor Espenilla Jr. said the central bank’s Monetary Board approved the mechanism or the mode of the contribution of the BSP on the P5 billion under the Strengthening Program for Rural Banks (SPRB) to be implemented by the state-run Philippine Deposit Insurance Corp. (PDIC).

“So basically that will complete it. Although it’s a partnership between BSP and PDIC, the frontline implementing entity is the PDIC,” he added.

Espenilla explained that the BSP would contribute half or P2.5 billion of the P5 billion package in the form of loans to PDIC.

He pointed out that there is a strong interest in the program that would spur mergers and consolidations in the country’s rural banking industry.

“There are strong interest from among rural banks. Speaking from the rural banking industry there is strong interest,” Espenilla said.

According to him, the BSP would sign a memorandum of agreement with PDIC afterwhich the state-run deposit insurer would conduct roadshows in the provinces starting next month.

The BSP official added that the central bank is open to increasing the P5-billion fund allocated for the incentive program.

The fund would be used to extend financial assistance to qualified investors through a combination of subscription to preferred shares, to provide additional capital to reinforce the capital position of the strategic third party investor and as direct loans.

The program is aimed at promoting the merger, consolidation and acquisition between or among eligible strategic third party investors and eligible rural banks to create a stronger rural banking system that can more effectively serve the countryside.

The program would provide the rural banks with the necessary incentives to merge and consolidate to enhance the industry’s long-term viability.

Last October, the BSP and PDIC also signed an agreement to harmonize their procedures to expedite the evaluation process for mergers and acquisitions of banks to further strengthen the country’s financial system.

Earlier, PDIC president Jose Nograles earlier expressed concern that of the total 700 rural banks about 179 are under the central banks, prompt corrective action scheme. On the other hand, 103 rural banks are lacking in capital.