Small banks urged to consider merger

MANILA, Philippines–Small countryside banks are being urged to consider merger as a way to strengthen their books and allow them to compete more effectively in the changing industry landscape.

Philippine Deposit Insurance Corp. (PDIC) president Cristina Que Orbeta said rural and cooperative banks could no longer rely on the trust and confidence of their respective communities to grow.

This follows the recent opening up of the local banking sector to foreign players. Recent incentives released by regulators also made it cheaper for larger banks to set up shop in far-flung areas.

“We need to face the problems while the bank is still open and come up with solutions early enough to avoid a closure scenario,” Orbeta said in a recent speech.

PDIC serves as the banking industry’s post-mortem regulators. When lenders are ordered closed by the Bangko Sentral ng Pilipinas (BSP), PDIC steps in as administrator of the institution’s assets. It also repays depositors and creditors, and makes sure borrowers make payments.

Just this week, the BSP’s Monetary Board ordered the closure of Rural Bank of Masingal in Ilocos Sur, which has 458 accounts and P17.4 million in deposit liabilities.

“Once a bank is closed, the chances for its rehabilitation becomes very minimal, almost nil,” Orbeta said.

Both PDIC and BSP have taken proactive steps to improve the condition of small banks, many of which find it difficult to cope with changing regulations and heightened competition.

The Strengthening Program for Rural Banks-Plus (SPRB Plus) and the similar SPCB—designed for cooperatives—encourage mergers among small banks.

Under the SPRB Plus, rural, thrift, universal and commercial banks, as well as non-bank corporations that qualify as strategic third party investors or so-called “white knights” may be granted financial assistance for the acquisition of thrift or rural banks.

In the meantime, the counterpart program for cooperative banks, the SPCB Plus aims to encourage mergers, consolidations and acquisitions of cooperative banks to strengthen the cooperative banking sector. SPCB Plus has been extended until September 2015, while SPRB Plus will run up to the end of December 2015.

Aside from financial assistance, banks availing of these programs are also granted regulatory relief, branching and other incentives by the BSP.

“These are facilities and incentives which may be tapped by banks, who are in investment or expansion mode, to acquire, merge or consolidate with banks that have problems,” Orbeta said.–Paolo G. Montecillo