Commercial and thrift banks are urged to acquire troubled rural banks, with regulators offering various incentives to potential white knights in a bid to end costly failures in the rural banking sector.
The Bangko Sentral ng Pilipinas announced Wednesday that the Strengthening Program for Rural Banks (SPRB), under which incentives are granted to encourage acquisition of weak rural banks, has been expanded to include commercial and thrift banks among those eligible to get incentives should they acquire a problematic rural bank.
The new and expanded version, called the “SPRB Plus,” will be in effect until December 2013.
Under the old version, which was supposed to end in August this year but is now superseded by the SPRB Plus, only financially healthy rural banks were offered incentives to acquire a weak rural bank.
The move to offer incentives to commercial and thrift banks came amid lack of takers from the rural banking industry. Most of the strong rural banks are not interested in acquiring a weaker industry player, regulators said.
The incentives being offered to potential white knights include loans to help plug capital shortfalls and to help meet needed resources to improve operations, temporary regulatory relief such as on capitalization requirements and easier requirements for branching.
Loans to be extended to investing banks will be sourced from the P5-billion fund, which the BSP and the Philippine Deposit Insurance Corp. have put up through their equal contributions.
“SPRB Plus expects eligible investors not only to sustain and strengthen the financial condition of resulting banks but also to improve their quality of corporate governance and management,” the BSP said.
The move to offer incentives for banks that will acquire troubled rural banks comes amid a spate of closures in the rural banking sector over the past few years.
BSP officials said closure orders for rural banks were prompted mostly by capitalization and mismanagement problems of the banks. Some closures were also prompted by alleged unsafe and unsound banking practices of the closed banks.
In this year alone, four rural banks have already been ordered closed by the Monetary Board of the BSP and placed under receivership of the PDIC. These include First Provincial Bank of Tarlac, Rural Bank of Gigaquit of Surigao del Norte, Rural Bank of Luna in La Union, and Rural Bank of Nasugbu in Batangas.
The BSP said problematic rural banks are the exception rather than the rule, saying that the country’s entire banking system remains generally sound and stable.
Nonetheless, it said acquisition of troubled rural banks is encouraged to help avoid costly closures.
Upon closure of a bank, government-owned PDIC assumes the failed bank’s remaining assets and shoulders payment of all its liabilities, including deposits from the public.
Given this, regulators said saving a troubled bank is preferred over closing it down.