PHL rural banks are getting stronger, says RBAP

The Rural Bankers Association of the Philippines (RBAP) has frowned on the Philippine Deposit Insurance Corp.’s (PDIC) claim that the country’s rural banking industry is growing weaker.

RBAP executive director Vicente Mendoza said in a statement this weekend that the industry is becoming stronger despite the closure of 23 rural banks as of end-October.

Mendoza pointed out that only 10 out of the 23 rural banks placed by PDIC under receivership were members of RBAP. RBAP has 599 members nationwide.

The PDIC’s claim does not, in anyway, encourage investors to come in and buy banks under receivership, Mendoza said.

The Bangko Sentral ng Pilipinas (BSP) and the PDIC had launched the “Strengthening Program for Rural Banks” or SPRB to strengthen the country’s rural banking industry through mergers and acquisition.

The program involves a P5-billion financial assistance and a grant of regulatory relief from the BSP and PDIC over two years.

Rural banks qualified to avail of the program have risk-based capital adequacy ratio below the BSP-mandated 10 percent and those that intend to merge or consolidate with eligible, strategic third-party investors.

Basel accord commitment

Mendoza pointed out that rural banks prefer to open new branches rather than acquire banks under receivership due to the tighter capitalization rules under the Basel commitment the BSP is implementing.

The Basel accords crafted in Basel, Switzerland is an international regulatory framework of banks.

“The reality in the industry is that rural banks would rather open new branches than take in troubled banks that would be hard to rehabilitate because of the tightened capitalization rules provided under the Basel framework that the BSP now requires banks to follow,” he said.

Last month, the BSP increased the minimum capital requirement for rural banks by as much as 285 percent to help sustain the viability and competitiveness of major industry players.

It was but right to amend the capital requirement for rural banks last month, Mendoza said, noting that the last time the required minimum capital requirement was raised was in December 1999.

The BSP raised the minimum capital requirement for rural banks with head offices in Metro Manila to P100 million from P26 million.

The minimum capital requirement for Cebu City- and Davao City-based banks was increased to P50 million from P13 million.

Rural banks’ minimum capital requirement in the first to fourth class municipalities was raised to P10 million from P6.5 million.

In the fifth to sixth class municipalities, the minimum capital requirement was increased to P5 million from P2.6 million.

Mendoza said the industry acknowledged the reforms as part of government measures and processes to strengthen banks, particularly after the global financial slowdown when even the mightiest financial institutions overseas had to fold up including Lehman Brothers Holdings Inc. and American International Group.

“While this is considered a tough requirement particularly among banks, the industry recognizes the need to assure the stability of banks throughout the country,” he said.

The number of banks in the country declined to 773 in the first half of the year from 804 in the same period last year, indicating the continued consolidation of banks as well as the exit of weaker players.

Central banks data showed that the number of universal and commercial banks was steady at 38 while the number of thrift banks was also unchanged at 74 in the same comparable period.

However, the number of rural banks fell to 661 from January to June this year compared to 692 in the same period last year, due primarily to the closure of several banks including those of the controversial Legacy Group.

The BSP reported that the number of branches of universal and commercial banks, thrift banks, and rural banks increased by 765 to 8,663 in the first semester of the year from 7,898 in the same period last year. — JE/VS. GMANews.TV