Rural institutions get Land Bank’s support

Land Bank of the Philippines has committed P1.3 billion worth of loan and equity support to cooperative banks that will undertake mergers, as it supports the call of regulators for small banks to consolidate and make their industry stronger.

According to Land Bank, a strong cooperative banking sector is necessary for economic growth, and consolidation is the most prudent way to achieve that aim.

Of the amount Land Bank has earmarked for the “Strengthening Program for Cooperative Banks” (SPCB), P1 billion will be available for loans to stronger industry players that will acquire the weaker ones.

The balance of P300 million will be in the form of equity investments that Land Bank will infuse to surviving entities among cooperative banks that will merge.

Both forms of financial support are expected to encourage consolidation among cooperative banks, most of which are now confronted with capitalization and governance problems.

“[Land Bank] hopes to see more groups merging to become stronger and more effective in serving the rural areas,” said bank president Gilda Pico, noting that several cooperative banks have already begun consolidation talks.

The Bangko Sentral ng Pilipinas has admitted that a significant number of cooperative banks are suffering from financial woes.

But there are healthy institutions that are capable of acquiring the weaker players, it added.

According to the BSP, consolidation in the cooperative banking sector may help avoid bank closures, which are costly for the government. Bank closures require the government, through the Philippine Deposit Insurance Corp., to shoulder deposit insurance claims.

The BSP spearheaded the establishment of the program for the benefit of around 40 cooperative banks throughout the country.

Apart from Land Bank, PDIC was also tapped by the central bank to provide financial support for cooperative banks that would engage in consolidation.