BSP approves P5 billion rescue fund, PDIC says

The Bangko Sentral ng Pilipinas and Philippine Deposit Insurance Corp. will set up a P5-billion rescue fund for distressed rural banks. While the central bank and the state-run insurer have tentatively agreed on the plan, PDIC president Jose Nograles said the amount is expected to increase once it has been used up. “Most of the weak banks are in the rural areas and they perform important lending services. Having come from the Land Bank of the Philippines (LandBank), I perfectly understand their needs," Nograles told reporters adding the BSP has approved the plan in principle. PDIC and BSP will each provide 40 percent of the capital requirement to bring back to the minimum regulatory requirement of 10 percent as capital adequacy ratio (CAR), or the bank’s ability to shoulder risks. “The white knight takes up most of the burden because the idea is for it to work the bank out of its problems," he said. As the money will be taken out of the PDIC’s deposit insurance fund, Nograles said it would be better if shouldering the capital requirement will be increased to 50 percent each “so that not everything is left to us." It will be cost-effective to save ailing banks than to close down operations and pay insured depositors. “It is sometimes a choice between closure and financial assistance and in certain cases it cheaper for us to extend financial assistance than just pay deposit insurance," he said. -GMANews.TV