The Bangko Sentral ng Pilipinas (BSP) has closed down another rural bank, this time in Northern Samar, due to the lender’s failure to put up more capital and the refusal of its management to correct certain deficiencies.
The BSP on Friday said the Rural Bank of Catubig was ordered closed by the Monetary Board last week. Over a dozen rural banks have been closed by the BSP this year as it tries to weed out weak players that serve vital segments of the economy.
“The Philippine Deposit Insurance Corp. (PDIC) has been designated receiver of the rural bank,” the BSP said.
The PDIC insures deposits of the bank’s clients of up to P500,000. The bank’s assets will be liquidated by the PDIC to raise funds to pay deposits that are larger than the maximum insurance.
In an interview, Monetary Board Member Felipe Medalla said the owners of the rural bank ignored instructions from the BSP that would have corrected the bank’s various deficiencies.
“In this particular case, we told the owners to put in more money as capital, but they refused,” Medalla said on Friday. He added that the BSP also told the rural bank’s owners to correct various management errors, but none of the prescribed actions were done.
Medalla stressed that, while closing down rural banks could result in losses to depositors, it was still vital to weed out weak players in the financial system.
“The soundness of the banking system is very important. If we don’t act on weak banks, the problem will get worse,” he said.
Allowing bad banks to survive will put more people at risk because, once those banks fail, it is the taxpayers, through the PDIC, that are burdened, he explained.