MB approves guidelines
in rescue of ailing banks
The Monetary Board, the policymaking body of the Bangko Sentral ng Pilipinas (BSP), said that it has approved the implementing guidelines and funding mechanisms for the program that will help investors who are willing to take over ailing banks.
"The monetary board approved on Friday the manner in which the BSP will contribute into the program. So basically that will complete it," BSP deputy governor Nestor Espenilla said in an interview.
BSP late last year approved in principle the Strengthening Program for Rural Banks (SPRB), a milestone project jointly conceptualized by the BSP and the Philippine Deposit Insurance Corporation (PDIC) to encourage mergers, consolidations and acquisitions via the grant of financial assistance to eligible strategic third party investors (STPI) who are taking over rural banks that are capital deficient.
Espenilla said that although it’s a partnership between BSP and PDIC, the frontline implementing entity is the PDIC.
"It’s the PDIC that has the ability to invest in preferred shares," Espenilla said.
Under the SPRB, a common fund of up to P5.0 billion, to be shared equally between the BSP and the PDIC of up to P2.5 billion each, will be established.
The financial assistance to eligible STPIs will be drawn from this fund.
Espenilla said that since the BSP is barred from extending equity assistance, its contribution to the fund may be by way of a loan to the PDIC.
"There are limitations on how the BSP could provide funding to banks.
Typically, it is by way of loans. This one is through equity enhancement. We’re trying to find a way that is permissible," Espenilla said.
He said that BSP cannot infuse equity.
"But since the idea is a partnership, our contribution to the transaction will be provided by way of a loan to PDIC. But the economics is equal burden sharing between BSP and PDIC," he added.
Espenilla said that as a deal comes along, PDIC will evaluate in accordance with agreed set of criteria with the BSP.
"PDIC will calculate how much the possible entitlement for a capital contribution. That contribution is basically lower cost capital, that’s the nature of support. BSP will then help by providing regulatory incentive," Espenilla added.
SPRB recognizes the vital role of rural banks in providing financial services to the community, particularly to their specialized or niche markets.
It intends to promote the merger, consolidation and acquisition between or among eligible STPIs and eligible RBs, to create a stronger rural banking system that can more effectively serve the countryside and better contribute in ensuring balanced and sustainable economic growth in our country.
Rural banks that are eligible for the incentive program are those whose risk-asset-ratio (RAR) is less than 10 percent and are merging or consolidating with an STPI.
To be eligible, the STPI should have a CAMELS rating of at least 3, not under the prompt corrective action program of the BSP and does not have findings of unsafe and unsound practices.
Espenilla also said that following the news that the BSP and the PDIC are setting up a financial assistance program for ailing rural banks, there have been a number of banks, especially bigger ones, that have shown interest in the program.
The central bank said the SPRB recognizes the vital role of rural banks in providing financial services to the community, particularly to specialized or niche markets.
In conjunction with the financial assistance, regulatory relief and other available incentives may likewise be extended to eligible investors.
BSP added that the financial assistance to be granted will be a combination of: a) subscription to preferred shares to provide additional capital to reinforce capital position and b) direct loans.
Efforts to beef up the capital base of local thrift banks came in the heels of the Legacy Group’s collapse last year.
At least 14 rural banks under the group led by businessman-turned-politician Celso de los Angeles closed one after the other in December 2008 when their capital base could no longer keep up with client withdrawals.