The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Rural banks or RBs, generally considered the main source of funds for small borrowers, are facing hard times.
In fact, most of them face extinction.
The Bangko Sentral ng Pilipinas (BSP), in a recent memorandum, has ordered another increase in the minimum capital requirement for every RB that would open new branches or increase business activity, according to the Rural Bankers Association of the Philippines (RBAP).
The BSP order was the second for the rural-bank industry in four years. With the new BSP memo, the minimum capital for RBs that open a branch in a fifth-class municipality would now be P10 million, which most rural banks would be hard pressed to produce.
This increase in paid-up capital requirement depends on the RBs’ location and number of branches.
Data gathered by The Market Monitor from the RBAP revealed that out of the existing 535 RBs, 530 may not meet the new BSP requirement.
The BSP circular gives RBs one year to comply with the new capital requirement. Those that fail will face a penalty from the regulator, according to Deputy Governor for Supervision and Examination Sector Nestor Espenilla Jr.
“All banks that are below the minimum capital should comply. They can immediately comply or submit capital build-up plan or submit merger plans,” Espenilla said.
Under the new circular issued by the Supervision and Examination Sector (SES) in February 2015, the minimum paid-up capital now for a single unit rural bank is now P10 million in 4th and 5th class municipalities.
Prior to the new memo, the minimum paid-up capital for an RB in a 5th class municipality was only P2.5 million regardless of the number of branches.
Banking sources said the BSP memo was apparently aimed at encouraging more rural banks to enter into mergers.
The data also showed that several big RBs have been sold to unibanks. EastWest Bank, Rizal Commercial Banking Corp. and Banco de Oro (BDO) are just some of the giant unibanks that bought big RBs.
One Network Bank (ONB) of the Consunjis, for instance, has been bought by BDO.