Merge or perish, BSP hints to rural banks

By Jerry Maglunog

When the Bangko Sentral ng Pilipinas (BSP) raised the minimum paid-up capital for rural banks (RB), it sent an underlying message for small struggling banks to merge for survival.

Under the new memorandum, anyone who wants to put up an RB needs at least P10 million, if it is located in a fifth-class municipality.

The amount needed if the RB would be located in a first-class city is 10 times higher. The order for RBs to raise their minimum paid-up capital is the second in less than five years. The last time the BSP raised it was in 2011.

According to the BSP, those that would not be able to raise capital would not be penalized if their operation warrants no increase in capital. The central bank also said penalty is not automatic for those that would not be able to comply.

“They need to justify why they can’t and the MB (Monetary Board) will verify it. (The penalties are) not automatic,” Deputy Governor for Supervision and Examination Sector Nestor Espenilla Jr. said.

However, many critics are asking why only the paid-up capital of RBs was raised and not those of universal and commercial banks and thrift banks that obviously have more money than these small banks.

“Is it because the central bank’s intention is to force RBs to merge and that’s why it raised the minimum paid-up capital? Nobody will admit that this is really the intention. But the message is that the BSP only wants strong RBs to remain, while the weak ones should merge to avoid closing,” said an investment banker who requested not to be named.

Some owners have already sold their rural banks. The giant unibanks that bought RBs recently were Banco de Oro (One Network Bank, or ONB) and EastWest Bank (Green Bank).

ONB is the second-biggest RB in the Philippines, with assets of over P15 billion; Green Bank is sixth, with P2-billion assets.

“The bottom line is still merger. That are just two of the over 530 RBs in the country,” said the source.

Rural Bankers’ Association of the Philippines (Rbap) President Jose Misael Moraleda said the BSP memo to raise paid-up capital will affect almost all RBs. He said now that their capital has been increased, the RB industry will rely on a law that allows foreign investments in any RB in the country.

Moraleda said the country can expect a stronger RB industry at par with commercial banks in terms of product and services that it can provide to its clientele with the recent passage of Republic Act (RA) 10574, which allows foreign investments in RBs.

RA 10574 is a consolidation of House Bill 5360 as amended and Senate Bill 3282 as amended was passed into law on May 24, 2013, lifting the limit on bank ownership that has been a hindrance for the expansion of operations of rural banks for more than two decades.

The passage of the bill is timely, as the country has been consistently receiving positive ratings and economic outlooks from international financial institutions such as the World Bank, Moody’s Investor Service and Fitch Ratings.

Likewise, the new law will foster a favorable economic environment in the countryside as foreign investors now have the option to infuse additional capital to rural banks. RBs, having financial stability through additional foreign capital, will be able to reach more to the unbanked and the under-served in the rural areas.

The law will also level the playing field for rural banks and bigger commercial banks, as rural banks can now take foreign investments, which was previously exclusive to thrift and commercial banks.

With the stable economic status that the country is experiencing, foreign investments and partnerships are almost within reach of rural banks.