Rural banks review consolidation program

MANILA, Philippines - The rural banking system is reviewing the Strengthening Program for Rural Banks (SPRB) in an attempt to speed up the process of consolidation.

The SPRB is a consolidation program initiated by both the public and private sector, supported by a P5-billion financial assistance fund. The fund came from the coffers of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC).

It was introduced in the first quarter of 2010 but so far, there had been no takers.

Yet in the same period, the number of rural banks declined to 647 from 674 in 2009. But the reduction of players was due to closures, mergers and acquisition (M&A) activities, and consolidation without the help of the SPRB.

“We are now in the process of reviewing the program to make it more attune to the times,” said Ian Eric S. Pama, newly-elected president of the Rural Bankers Association of the Philippines (RBAP), as well as president of Valiant Bank, the largest rural bank in Iloilo.

In fact, the review goes beyond SPRB and will most likely tackle other issues related to the consolidation of the rural banking system.

The BSP introduced new regulations increasing the minimum capital for all banks. Monetary authorities then introduced regulations on opening quasi-branching, and finally, the phased lifting of the branching ban in Metro Manila.

The private sector meanwhile asked for more incentives related to M&A and consolidation, as well as initiatives for amendments to the Rural Banking Law allowing the entry of foreign investors to the system.

But beyond the inductive regulatory environment, Pama said that external conditions demand the consolidation of the industry.

“In five to 10 years, the market will be saturated by the expansion of the big boys (mainly major commercial banks), and it will be difficult to compete with them,” the RBAP president said, adding that within the same period the major players would have consolidated the commercial banking system.

“If we don’t consolidate now, we (the rural banking system) will have a hard time operating competitively,” Pama added.

Already, two major players have taken the plunge.

The Rizal Commercial Banking Corp. (RCBC) acquired the Pres. J.P.Laurel Rural Bank in 2009, which has since expanded its microfinance operations in Southern Tagalog.

In about the same time, the Bank of the Philippine Islands (BPI) formed a microfinance-oriented thrift bank, through a mobile banking platform. Presently, it has a wholesale loan portfolio of roughly P1.5 billion all coursed through 45 microfinance institutions (MFIs).

Meanwhile, the BSP said that the number of total banks retreated by 27 to 758 last year from 785 in 2009.

The number of universal and commercial banks was unchanged at 38 and thrift banks at 73 while the number of rural banks declined to 647 in 2010 from 674 in 2009.

The number of branches of the banks operating in the Philippines increased by 3.5 percent to 8,111 last year from 7,835 in 2009.

The branches of universal and commercial banks went up by 3.5 percent to 4,641 from 4,482, while that the thrift banks increased by 6.8 percent to 1,346 from 1,260.

Despite the decline in the number of rural banks, the industry’s branches inched up by 1.5 percent to 2,124 last year from 2,093 in 2009.