More incentives for rural bank purchases eyed

The Bangko Sentral ng Pilipinas plans to enhance the incentives offered to banks that will acquire troubled rural banks in a bid to encourage mergers and prevent more closures of banks in the countryside.

The ongoing Strengthening Program for Rural Banks (SPRB), under which the BSP encourages healthy banks to acquire problematic rural banks, is perceived to have insufficient incentives given the lack of takers.

The existing incentives package under SPRB allows the state-run Philippine Deposit Insurance Corp. (PDIC) and the central bank to extend loan support and to grant regulatory relief to banks that will acquire rural banks suffering from capitalization problems.

Industry players said, however, that banks did not find the incentives attractive enough to agree to take on the burden of acquiring a troubled rural bank, including all its debts and other liabilities.

“We are reviewing the SPRB and we may enhance the incentives,” BSP Deputy Governor Nestor Espenilla Jr. said Friday.

Espenilla said the central bank was looking at making the incentives package for SPRB the same as those of a similar program for cooperative banks, called the Strengthening Program for Cooperative Banks (SPCB).

Under the SPCB, PDIC provides capital infusion needed to make the troubled cooperative bank meet the minimum capital requirement, and the BSP grants some form of regulatory relief.

Once the bank meets the capital requirement, Land Bank of the Philippines infuses equity shares to match those to be provided by the white knight, essentially making the previously troubled cooperative bank stronger.

“Banks find the incentives under the SPCB more attractive, and so we are reviewing the SPRB to make the incentives under it parallel to those under the former,” Espenilla said.

The central bank came up with programs to encourage big banks to acquire capital-deficient rural and cooperative banks in a bid to prevent more costly closures, which entail cost for the government, particularly to state-owned PDIC, given the need to pay deposit insurance claims.

Although the BSP considers the country’s overall banking sector in good shape, driven by the strong financial performance of universal, commercial and thrift banks, some rural and cooperative banks are facing capitalization and management problems.

The central bank said promoting consolidation was consistent with efforts to strengthen the overall rural and cooperative banking sectors.