28 investors line up to acquire ailing rural banks, businesses

At least 28 investors are interested to acquire ailing rural banks under a merger and acquisition program being implemented by the Bangko Sentral ng Pilipinas (BSP) and the state-run Philippine Deposit Insurance Corp. (PDIC). PDIC president Jose Nograles said more strategic third party investors (STPIs) are expected to take part in the program aimed at strengthening the country's rural banking industry through mergers and acquisitions. "Some of the people are waiting for this. There are at least 28 investors or STPIs," Nograles said during the launching of the Strengthening Program for Rural Banks (SPRB) Tuesday. He said the SPRB involves a P5 billion financial assistance and regulatory relief by the PDIC and BSP over a period of two years. Nograles signed the Memorandum of Agreement with BSP Governor Amando Tetangco Jr. on the SPRB Tuesday in Makati City. The rural banks qualified with to avail of the program are those whose risk-based capital adequacy ratio (CAR) fall below the BSP requirement of 10 percent and those merging or consolidating with an eligible STPIs. On the other hand, the third party investors that are qualified to join the SPRB include those not under the central bank's prompt corrective action (PCA) program and those not engaged in unsafe and unsound banking practices. The STPIs should also have a CAMELS rating (capital adequacy, asset quality, management quality, earnings, liquidity, sensitivity to market rating) of at least "3." The P5-billion financial assistance covers the equity component in the form of preferred shares. This is equivalent to up to 50 percent of additional capital required to bring the CAR to the eligible level of 10 percent. It should have a dividend rate equal to five-year fixed rate treasury notes. The shares should also be non-voting, cumulative, and convertible to common shares. They should be redeemable starting on the fifth year but not later than 10th year from the issuance of the preferred shares. On the other hand, the direct loan component of the financial assistance covers the principal amount equal to that which would allow the merged or consolidated rural bank to earn a net interest spread over loan tenor. It should also involve an effective interest rate of governmnent securities purchased using loan proceeds less than three percent. On top of the financial package, the BSP agreed to extend regulatory relief to those who would participate in the program. The relief includes the waiver of the monetary penalties imposed on rural banks for violating existing laws and BSP rules and regulations. The other relief packages being offered by the BSP include the restructuring of past due rediscounting or emergency loans of the eligible rural banks with the BSP, as long as they fall within the guidelines about the amount to be restructured, interest rate, terms of repayments, collateralization, default clause, and documents needed. The other incentives include the preferred shares for staggered redemption as well as the rediscounting ceiling of at least 150 percent of the adjusted capital accounts of the merged rural bank for one year. To further entice rural banks to join the program, Nograles said the PDIC will enter into a confidentiality clause to protect their identities. PDIC also established a lane for SPRB. "There is confidentiality agreement wherein we can be sued if information about the bank is leaked," he said. Last October, the BSP and PDIC also signed an agreement to synchronize their procedures to speed up the evaluation process for mergers and acquisitions of banks. Earlier, PDIC expressed concern that about 179 out of 700 rural banks are under the central bank's prompt corrective action scheme. Meanwhile, 103 rural banks were found to be lacking in capital. –VVP/OMG, GMANews.TV