BSP may expand rural bank support program

Rural banks aren’t processing more credit than what the Bangko Sentral ng Pilipinas would like them to, forcing the regulator to rethink its current program that was supposed to encourage mergers and acquisition in this subsector of the industry. The Special Program for Rural Banks or SPRB was designed to encourage financial institutions in the countryside to fuse with or acquire each other with a view to making them stronger. It was supposed to create larger and more competitive rural lenders on the premise that larger banks have more capital to lend more BSP Deputy Gov. Nestor Espenilla told reporters on Wednesday. “We’re actually looking at expanding the program to cover possibly other entities. But it’s still too early to say," Espenilla said. The original concept of the SPRB was to give rural banks in the process of merging preferential treatment, including the condonation of fees or fines for violations of BSP rules and higher rediscounting ceilings The BSP and the Philippine Deposit Insurance Corp. contributed P2.5 billion each as seed money for the program in which the government, represented by state-owned Land Bank of the Philippines, was to become part owner — for a limited period — of banks undergoing ownership transformation. The program authorizes LandBank to subscribe to the preferred shares of merging entities to safeguard government money until rural bank has grown larger. Espenilla said expanding the SPRB program is a “great idea to cleanse the financial system [and] to expand the availability of credit." “Weak banks are not in a good position to provide credit, and for credit to happen a basic precondition is that we must have financial institutions that have the ability to extend credit," the deputy governor explained. Credit thrives when industry members do not have to worry over liquidity levels or solvency issues or need only to lend to themselves in order to survive, he said. “In fact, they might only be lending to themselves which is what we are trying to eliminate. We have many kinds of small financial institutions and we’re trying to see if we can promote further consolidation resulting to stronger small entities," Espenilla added. A few bank executives and another regulator acknowledged the program has languished from a lack of interest, especially from rural banks whose offers fear that enlisting in the program would send the message that their banks are in some form of financial difficulties. Sources said rural banks were interested in the program but fear the unintended consequence of creating trouble for themselves when word goes out that some of them were seeking some form of assistance from the regulators. — VS, GMA News