By Melissa Luz T. Lopez,
Senior Reporter

GROUPS of rural banks based in Southern Luzon and Leyte will soon merge as bigger lenders under the government’s consolidation program, with regulators also looking to accept other similar proposals as it seeks to extend the two-year window which ends this week.

Philippine Deposit Insurance Corp. (PDIC) president Roberto B. Tan said two groups of small lenders based in these areas have moved closer to their merger plans under the Consolidation Program for Rural Banks (CPRB), which dangles financial and technical aid to such firms.

Of the three proposals received by the government agencies, those submitted by a cluster of banks in Southern Luzon and Leyte are closer to carrying out the mergers.

“Two of these bank groups have recently submitted their proposed consolidation plans for evaluation by the PDIC and BSP (Bangko Sentral ng Pilipinas),” Mr. Tan said in a text message last week, while noting that a third group of banks has moved forward in choosing a financial advisor for the planned merger.

The PDIC, BSP, and the state-owned Land Bank of the Philippines (Landbank) run the program, which seeks to prod rural banks located in one province or region to merge by extending legal, technical, and financial aid as they form one entity that would be of better financial footing.

Under the guidelines, the surviving entity must have a risk-based capital adequacy ratio of at least 12% and a combined unimpaired capital of at least P100 million. The banks may infuse fresh capital or tap Landbank’s equity investment facility to meet the requirements.

Banks merging via the CPRB may seek financial assistance for portions of the costs incurred for financial advisory services, business process improvement services, or capacity building support in pursuing the consolidation.

The BSP previously dangled incentives for bank consolidation. Such mergers are seen to fortify the capital and asset base of the lenders, making them more liquid and resilient versus defaults.

In April, the regulators eased program rules by letting go of the five-bank requirement to enjoy the perks under the CPRB. Now, any number of banks looking to merge can tap the facility, provided that they can meet the required capitalization.

BSP Governor Nestor A. Espenilla, Jr. previously said that the mergers will likely be realized later this year.

The CPRB will accept applications until Friday, which marks the end of the two-year program. However, Mr. Tan said the agencies are now working to extend the offering. “Review and possible revisions in the guidelines of the CPRB are ongoing. PDIC, BSP, and Landbank will seek approval from their respective boards on the proposed extension of the program,” Mr. Tan added.

The central bank has shut down five rural banks so far this year after these were found incapable of remaining in business due to unhealthy balance sheets and insufficient assets.

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