Co-op banks’ consolidation pushed

The Bangko Sentral ng Pilipinas (BSP) is pushing for the consolidation of the cooperative banking sector, eyeing to cut the number of co-op banks in the country from 40 to only about five.

The BSP adopted this position as it noted the growing number of capital-deficient and ill-managed co-op banks.

Nestor Espenilla Jr., the central bank deputy governor in charge of bank supervision, said there were co-op banks that were very well managed and adequately capitalized. He said these banks were urged to acquire the problematic ones to strengthen the cooperative banking industry.

“We (BSP) observe a trend of weakening of co-op banks. We are concerned that if this trend is not averted, this may result in closure of several co-op banks,” Espenilla said.

To avoid closures, the BSP, Land Bank of the Philippines and Philippine Deposit Insurance Corp. (PDIC) have initiated a program that provides incentives to big cooperative banks that will acquire weaker players.

Espenilla said the objective was to have as few as five strong cooperative banks that would operate in various regions of the country.

Under the program, called the Strengthening Program for Cooperative Banks (SPCB), Landbank and PDIC will infuse equity into capital-deficient cooperative banks to make them attractive to buyers.

The amount of capital to be infused by the government entities should be enough to enable the co-op bank meet the 10-percent capital adequacy ratio (CAR) requirement of the BSP.

The buyer is also required to infuse additional capital by an amount sufficient to further increase the CAR of the surviving bank to at least 15 percent.

The BSP will contribute to the program through the granting of regulatory relief, such as in the form of waived penalties for noncompliance to capital requirements and other bank regulations.

Espenilla said the program was backed by industry members who agreed that there was a need for consolidation.

Discussions about the details of the co-op banking industry consolidation were ongoing, he said.

Besides capital infusion, technical assistance will also be part of the SPCB. The technical assistance will focus on proper governance and other matters related to operations.

Espenilla said the SPCB had gotten the interest of foreign cooperative banking institutions.