The Market Monitor Minding the Nation's Business
By Jerry Maglunog
As the number of rural banks (RBs) continues to fall, rural bankers said the latest action of the Bangko Sentral ng Pilipinas (BSP) to create the consolidation program for rural banks (CPRB) is very timely.
The central bank said the latest assistance to smallest classified banks is not a redundancy to an earlier program that has the same purpose, the Strengthening Program for Rural Banks (SPRB) Plus.
The SPRB Plus is an enhanced version of the original SPRB launched in 2010 exclusively for RBs. In launching the CPRB, the BSP expects the RB industry to expedite serving the unserved 37 percent of the country’s cities and municipalities.
CPRB is actually a three-pronged assistance that will come from the BSP, the Philippine Deposit Insurance Corp. (PDIC and Land Bank of the Philippines.
BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. said the purpose of the CPRB is to promote mergers and consolidations among RBs and not to demoralize the sector like many observers presume.
BSP Gov. Amando Tetangco Jr. said the BSP, PDIC and LandBank jointly conceptualized the program.
“It intends to promote mergers and consolidation among rural banks to bring about a less fragmented banking system by enabling them to improve financial strength, enhance viability, strengthen management and governance and expand market reach, among others,” Tetangco said.
Data from the BSP showed there are 512 RBs operating nationwide. In order to qualify for CPRB, at least five RBs—which shall preferably be located in the same region—must take part and the result of the consolidation will be a capital of at least P100 million.
The CPRB would be available for two years from the signing of the memorandum of agreement (MOA) containing the terms and conditions, as well as other arrangements in implementing the program.
Tetangco said the Countryside Financial Institutions Enhancement Program (CFIEP) has set aside P25 million to support the financial advisory, business process improvement, and capacity-building support services necessary to ensure the attainment of the program’s objectives.
Tetangco said the central bank would observe full flexibility in granting regulatory and other incentives allowable under existing banking laws and regulations.
Last December the BSP and PDIC approved the extension of the SPRB Plus to end-December this year from end-December last year with certain operational refinements after banking-industry associations pushed for the program’s extension.
The one-year extension would allow opportunity and encourage more mergers, consolidations and acquisition of eligible RBs and thrift banks by strategic third party investors (STPIs).
“Both the SPRB and SPRB Plus programs will help us regain our strength we once enjoyed some three decades ago,” Enrique Abellana, president of the Rural Bankers’ Association of the Philippines, said.
However, the official said no matter how many programs the BSP, PDIC and other government regulators set up, the misery that besets the RB industry will remain after LandBank entered into the microloan program for teachers.
Abellana described the entry of the government-owned bank in the microloan arena as a “stab in the back” of ailing RBs as the fourth biggest unibank in the country is snatching hundreds of thousands of clients from RBs.
The most dangerous part of LandBank’s loan offer is it is 1 to 2 percent lower than prevailing market rate of 6 percent. “The approved spread is 6 (percent), but because this bank has plenty of money it can afford to bring it down rates by 1 to 2 percent.
“It may not be illegal but illogical because it’s a government entity that aims to help ailing RBs, not to compete with us,” the RB executive, a director of one of Central Visayas’ strongest banks, the Rural Bank of Barili (Cebu) Inc., explained.
Abellana said Land-Bank can further help the smallest classified banks if it will get out of the microloan business for teachers and rediscounts more often.
“DBP (Development Bank of the Philippines) rediscounts more often but not LandBank,” the banker said.
The RBAP president said the entry of landbank in the business intended for RBs will totally disrupt the system as the bank, now with about P820 billion in assets, will easily eat up the market.
“Definitely those seeking loans will go to them not to us because the spread they offer is lower,” he said. Abellana said that being a government-owned bank, LandBank is the official depository of all GOCCs and departments.
“It also receives the billions of pesos of financial aid given to the national government. But for us in the private sector, every centavo we make is a result of hard work and perseverance. That misery will further aggravate because we are now competing with a giant,” the RBAP president said.