Regulators have approved an extension for incentives to encourage countryside banks, with the aim of strengthening the industry by creating bigger and stronger players while allowing weak institutions to make an orderly exit.
The Bangko Sentral ng Pilipinas (BSP) announced this week the year-long extension of incentives under the Strengthening Program for Rural Banks (SPRB)-Plus, which originally lapsed at the end of last year.
The BSP’s Monetary Board last Thursday extended the validity of the program until the end of 2014.
“SPRB-Plus aims to strengthen the banking system and to minimize bank closures,” the BSP said in a weekend statement.
SPRB-Plus—a modified version of the original SPRB—is a joint project between the BSP and the Philippine Deposit Insurance Corp. (PDIC), which acts as receiver for shuttered banks.
It provides incentives for “white knight” investors to acquire smaller banks and encourage consolidation within the sector that caters to the most sensitive segment of the economy.
The previous SPRB rules limited the definition of white knights to rural banks. SPRB-Plus expands this to include bigger thrift, and universal and commercial lenders.
Along with the extension, the BSP’s Monetary Board also approved certain changes to the SPRB-Plus rules.
This includes the relaxation of the required ownership level of white knights in banks being rescued. From the previous 67 percent, acquiring banks now need to only acquire 60 percent of a smaller bank to be eligible for the SPRB-Plus incentives.
Apart from making it easier for mergers to take place, this relaxation also puts the rules in line with the recently passed Rural Banks Act, which allows foreign firms to acquire as much as 60 percent of rural banks in the country.
The BSP and PDIC also incorporated incentives for mergers involving banks that were affected by Supertyphoon “Yolanda.”
The PDIC will now pay for 100 percent of the required additional capital to restore a bank’s operations, if that bank was affected by the recent calamity. Under normal circumstances, the deposit insurer’s financial assistance would be limited to 50 percent.
Existing incentives in the SPRB-Plus program include the relaxation of rules for branch expansions, and temporary regulatory relief such as on capitalization requirements, among others.