The Bangko Sentral ng Pilipinas (BSP) is finalizing its review of rural banks’ required minimum capital to ensure a safe, sound and well-capitalized small banks’ sector.
“The BSP is in the final stages of its review of the minimum capital requirements for rural banks, which considers the evolving factors affecting the viability of rural banks’ businesses and operations,” said BSP Governor Benjamin E. Diokno on Thursday, March 31.
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Diokno said the proposed circular will be released soon to gather rural banks’ comments and suggestions.
“Based on studies, a strong capital base is critical in addressing the key challenges of rural banks,” he told reporters in an online press chat on Thursday.
Diokno added that a well-capitalized rural bank will be able to do the following: enhance their risk management systems; upgrade resources and manage operational costs; meet prudential standards, and accelerate digital transformation.
The BSP’s review of rural banks’ minimum capital requirements is in line with moves to strengthen the sector. Last March 3, the BSP approved the Rural Bank Strengthening Program (RBSP) to enhance the operations, capacity, and competitiveness of rural banks.
“Strengthening the capital base will enable rural banks to upgrade their resources, upskill their personnel, or hire more professionals,” said Diokno.
The BSP will be conducting stakeholder consultations to promote the RBSP and enable rural banks and interested parties to assess their willingness and capacity to adhere to the requirements of the program.
Since the pandemic was declared in March 2020, the BSP closed the operations of 21 rural banks while two rural banks voluntarily surrendered their banking licenses.
Also since 2020, Diokno said the BSP has processed 18 transactions for mergers, consolidations and acquisitions, of which nine are rural bank transactions.
The RBSP is composed of four key elements: a strengthened capital base; five time-bound tracks; incentives and capacity-building interventions; and review and enhancement of existing regulations.
These five time-bound tracks are merger and consolidation, acquisition/third party investment, voluntary exit/upgrade of license, capital build-up, and supervisory intervention.
Diokno said qualified rural banks that successfully complete the first four tracks may avail of various incentives and capacity-building interventions as determined by the BSP.
Incentives may include support for digitalization, financial advisory, prudential relief or support measures, and fiscal incentives, which will be carried out in partnership with relevant agencies and multilateral development partners, such as the Asian Development Bank, he said.
The BSP said 30 rural banks have undergone mergers and consolidations under its previous program, the Consolidation Program for Rural Banks (CPRB). Of the 30 rural banks, 16 have been absorbed by thrift banks while the rest were merged with other rural banks.
When the CPRB expired, the BSP developed the RBSP.