Banks under rehabilitation get needed relief from BSP

The Bangko Sentral ng Pilipinas has granted banks undergoing rehabilitation some regulatory relief to help them recover from stress fully.

Under BSP Circular 763, these banks are allowed to charge, on a one-time basis, all the potential loan losses on their retained earnings rather than their incomes. As such, the loan losses will not impact on the profits as reported in the books of the concerned banks.

However, the BSP said, the concerned banks must fully disclose in their audited financial statements, annual reports and published statements of condition the fact that their losses were not charged to their incomes.

However, only banks whose rehabilitation plans were already approved by the BSP are qualified for this regulatory relief. Concerned banks are also expected to have sufficient retained earnings.

“The circular is meant to  allow a bank to clean up its balance sheet once and for all without having to book their losses against current income, which may create a negative perception,” BSP Deputy Governor Nestor Espenilla told the Inquirer.

“A bank availing itself of this one-time relief is required to fully disclose the matter so the public can understand the situation,” Espenilla said.

The issuance of Circular 763 came amid an ongoing program of the BSP and Philippine Deposit Insurance Corp. to promote the acquisition by healthy banks of capital-deficient rural banks.

Under the Strengthening Program for Rural Banks Plus (SPRB Plus), the BSP and PDIC offer incentives such as loans and equity contributions so that the buying banks will be able to rehabilitate more easily the troubled lenders that are being acquired.

The implementing guidelines of the SPRB Plus were released last week. Based on the guidelines, potential rural bank buyers may be given the chance to put up additional branches for their newly acquired banks.

Circular 763 and SPRB Plus encourage efforts to rehabilitate troubled banks, mainly rural banks.

Although the BSP has repeatedly stressed that the country’s rural banking sector in general remains healthy, several rural banks have closed in the past three years.

In 2011, 31 rural banks were ordered closed by the central bank’s Monetary Board mainly due to insolvency and mismanagement problems.

Regulators prefer that troubled banks are saved and rehabilitated since bank closures are costly for PDIC, which insures bank deposits.