Mergers and acquisitions among countryside banks in the Philippines are expected to continue following the extension of an incentive scheme for “white knights” that aims to facilitate consolidation in the sector.
The Bangko Sentral ng Pilipinas (BSP) said it had extended the Strengthening Program for Rural Banks-Plus (SPRB+) for one more year up to the end of 2015.
In a statement, the BSP said the extension, which was approved earlier this month, was done “in response to the clamor of banking industry associations.”
“SPRB+ aims to strengthen the banking system and to minimize bank closures,” the BSP said.
A dozen or so rural banks are ordered closed by the BSP every year, mostly after finding out that their officials were engaged in unsafe and unsound banking practices, intentionally or not. These small banks make up less than 5 percent of the financial sector’s total assets, but they outnumber all other types of lenders six to one. They are present mainly in areas unserved or underserved by larger banks.
While regulators say the rural banking industry as a whole was healthy, individual players that have neither the resources nor the ability to cope with tougher regulations and competition should be given a chance to exit.
The program was set to expire at the end of 2014 with the lapse of a similar one-year extension granted 12 months prior.
“With this extension, we expect to receive more proposals. We urge industry members to avail themselves of this limited opportunity. Considering the much stronger condition of the banking system today, this may be the last extension,” BSP Governor Amando M. Tetangco Jr. said.
A joint project between the BSP and Philippine Deposit Insurance Corp. (PDIC), SPRB+ encourages more mergers, consolidations and acquisition of eligible rural banks and thrift banks by strategic third party investors.
In its current form, the program is an enhanced version of the original SPRB which was launched in 2010 exclusively for rural banks.
The scope was broadened and enhancements were made under the SPRB+ such as inclusion of thrift banks as among the eligible banks that may need rescuing. Thrift banks, universal and commercial banks (UKBs), nonbank corporations and other firms were also allowed to stand in as “white knight” investors that can infuse additional capital and improve a failing bank’s operations.
“White knight” investors, with the exception of universal and commercial banks, and financial conglomerates, are allowed to avail of financial incentives from the BSP and PDIC should they decide to acquire smaller banks.
Regulator incentives are also available under the program such as the waiver of government fees, and more relaxed approval of plans to open new branches.