The Bangko Sentral ng Pilipinas (BSP) is studying the possibility of allowing its attached agency Philippine Deposit Insurance Corp. (PDIC) and banks to make equity investments in rural banks.
BSP’s Monetary Board member V. Bruce J. Tolentino said PDIC is exploring whether it could make this happen, and not just via PDIC but also with state banks and private-owned big banks.
“They’re talking about equity investments angle and the first discussion is, whether or not, we... meaning PDIC itself, or the Landbank of the Philippines, or the Development Bank of the Philippines, or private commercial banks, can find merit in investing... making equity investments in rural banks. So, it’s not only in PDIC, it’s also Landbank, DBP, and commercial banks,” said Tolentino in a recent event hosted by the Rural Bankers Association of the Philippines.
PDIC has been recently transferred to the BSP from the Department of Finance following the amendment of the PDIC charter. BSP Governor Felipe M. Medalla is now the chairperson of the PDIC.
Tolentino emphasized that under the amended Agri-Agra Law, investments by banks in rural banks and other actors in the rural area are now considered compliance.
“We tried our best to make compliance in the Agri-Agra Law as easy as possible particularly for commercial banks. And if they have difficulty particularly with the large commercial banks that are owned by foreigners and who mostly serve foreign clients, they absolutely have no clients in the rural areas. (And) one of the easiest ways they can comply is making equity investments (in rural banks). As a business decision, of course. So, we’re working on it,” Tolentino told RBAP members.
A new law was recently enacted which is consistent with the Agri-Agra Law. Republic Act No. 11901 or the “Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022” lapsed into a law last July.
Since May this year, the BSP and RBAP has been in close consultations, including the holding of seminars and workshops, for the new Rural Bank Strengthening Program or RBSP.
The purpose of the RBSP is allow rural banks to have a stronger capital base. “The capital base requirements have been stagnant for so long that they need to be attuned to the current times and the current financial landscape,” said Tolentino.
He said the BSP is giving rural banks substantial time to assess their capital condition.
“As of now, banks are being asked to declare whether or not they comply or not with the capital requirement. That’s the process that’s going on right now. The next phase is a period of about 6 months within which you will sit together with your boards and owners to decide on the tracks and the future of the bank. And what kind of assistance you may need to go through the process,” explained Tolentino.
“We will not change the capital requirements while the program is going on for the next 3 to 5 years,” he further assured rural banks. “Moreover, the BSP has set aside resources and a fund which will support incentives and assistance for those who will participate in the RBSP. The funds will support the cost of technical assistance and expert services for due diligence, training, digital innovation, and the design and documentation requirements for mergers and acquisitions,” he added.
In September this year, the BSP approved an increase in the minimum capital requirement for rural banks as they prepare to implement the RBSP, and to help them improve their risk management systems. The higher capital base will also upgrade rural bank resources, operational costs, and accelerate digital transformation.
The minimum capital levels of rural banks are: P50 million for head office only and those with up to five branches; P120 million for those with six to 10 branches; and P200 million for those with more than 10 branches.
The rural banking sector is given five years to comply with the new minimum capital requirements.
The RBSP is a structured program with four key elements including strengthened capital base, holistic menu of five time-bound tracks, as well as incentives and capacity building interventions and review and enhancements of existing regulations.
Basically, RBSP gives rural banks’ several options on enhancing their capital base such as: merger and consolidation; acquisition/third party investment; voluntary exit/upgrade of banking license; capital build-up program; and supervisory intervention.