Rural banks that aggressively expand their digital footprint beyond their traditional physical territories risk being reclassified as digital banks, a move that would subject them to a 20-fold increase in minimum capital requirements.

In the Bangko Sentral ng Pilipinas (BSP) latest draft circular, the central bank proposes a strict 30 percent cap on the share of customers a rural bank can serve outside its designated physical areas of operation.

“Rural banks utilizing online platforms to deliver services shall continue to cater primarily to the communities where they operate. Accounts of customers outside their physical areas of operations shall not exceed 30 percent of total customer accounts,” the BSP wrote.

Under the proposed circular, which is fetching industry feedback until Feb. 25, the BSP could take action against rural banks if more than 30 percent of their customers are outside their branch or head office areas.

Among the major actions may include requiring the concerned rural bank to meet all digital bank rules—including a minimum ₱1 billion capital within a year—and to maintain a Supervisory Assessment Framework (SAFr) rating of 3 or higher.

A SAFr rating of 3 indicates the bank is stable, with risks well managed across the organization. Its board and management can handle supervisory concerns, and the bank has enough buffers to withstand most shocks.

If a rural bank has the ability to offer full digital onboarding of customers, the central bank considers this a marker of operational complexity. As such, the BSP could factor this into “determining the applicable prudential requirements.”

As per the updated manual of regulations for banks (MORBs), rural banks must maintain a minimum capital of ₱50 million if they operate only a head office and up to five branches, ₱120 million for six to 10 branches, and ₱200 million for more than 10 branches.

“The policy proposal seeks to ensure that prudential standards remain proportionate to the evolving risk profile of rural banks as they transition toward more technology-enabled operations,” the BSP said.

Notably, the proposal would allow digital banks to establish physical, non-transactional service points “to support the delivery of their products and services,” subject to approval by the central bank’s supervising unit.

Once approved, rural banks will have one year from the guidelines’ effectivity to comply.