The Bangko Sentral ng Pilipinas expects a major consolidation in the cooperative banking sector within the near term, saying more than half of industry players have expressed interest to either acquire or be acquired by another cooperative bank.
The keen interest to consolidate comes amid an ongoing incentive program by the BSP, the Philippine Deposit Insurance Corp. and Land Bank of the Philippines for mergers and acquisitions within the cooperative banking sector.
The BSP said in a report that out of the existing 40 cooperative banks in the country, 24 have already expressed interest in undergoing consolidation.
Moreover, there are already three actual applications for consolidation submitted to regulators by 14 cooperative banks. These applications are now in the process of evaluation, the BSP said.
Regulators are pushing for consolidation among cooperative banks in a bid to strengthen their industry.
Without giving names, the BSP said several cooperative banks are financially weak and that they are better off being acquired by the few very strong industry players.
The push for consolidation is what drove the BSP and PDIC to establish an incentive program for cooperative banks that will consolidate.
Under the Strengthening Program for Cooperative Banks (SPCB), banks that will consolidate shall be granted financial assistance, such as in the form of loans and capital infusion, and temporary relief from some regulations.
In particular, PDIC and Land Bank may contribute equity infusions at amounts that will make the consolidated cooperative banks achieve a net worth of P100 million and a risk-based capital adequacy ratio, which is the proportion of capital to risk-exposed assets, of 15 percent.
The equity infused by the state-owned firms may be bought from them after 10 years.
The BSP will be in charge of providing regulatory relief, such as flexibility in branching, restructuring of emergency loans secured from the central bank, and waiver of penalties for some unmet regulations.
The existing 40 cooperative banks in the country account for about 0.2 percent of the over P7 trillion in assets of the entire banking sector.
“While the assets of the cooperative banking sector account for only a small fraction of the assets of the entire banking system, it plays a vital role in the financial system,” the BSP said in an earlier statement.
The BSP said most of the existing cooperative banks operate in the countryside and provide access to financial services to micro-businesses in the rural areas.
The BSP said that with the SPCB, cooperative banks are expected to be better equipped in helping pursue economic development in the rural areas.—Michelle V. Remo