By Imee Charlee C. Delavin, Reporter

Rural banks considering mergers, consolidation

Posted on June 22, 2016

AT LEAST 28 rural banks are currently in talks for possible mergers that would see four major countryside players in Luzon and Visayas.

Rural Bankers Association of the Philippines’ (RBAP) new president Antonio O. Pasia said five rural banks in Batangas, 12 in Laguna and five others in Cavite are having consolidation talks. Six rural banks in Leyte are also discussing a possible merger.

“Many rural banks are in consolidation process, many want to merge... the point is that they are realizing that if they want to remain as rural banks, it is better to be stronger and so to join forces,” Mr. Pasia said at the sidelines of the RBAP turnover ceremony for incoming officials.

“The challenge is how to spin [into that]. So consolidation is a strengthening mechanism,” he added.

Mr. Pasia noted that merging would fortify smaller lenders in terms of technology upgrades and complying with more stringent capital requirements set by the Bangko Sentral ng Pilipinas (BSP).

Mr. Pasia, who is also president of Batangas-based Malarayat Rural Bank Inc., added that consolidation is something to consider for rural banks.

“At least now, they’re already talking and there’s no government intervention on this, they’re really the ones who are initiating the talks among themselves.”

The BSP under Memorandum Circular No. 854 issued October 9, 2014, required rural and cooperative banks with head offices in Metro Manila to keep P50 million to P200 million in capital based on their branch network.

Those with head offices outside the capital and in first to third class municipalities are required a minimum P20 million to P80 million in capital, while those headquartered in fourth to sixth class municipalities should have P10 million to P40 million for capital.

There are 524 rural banks operating in the Philippines as of end-2015 with a network of 2,086 branches and bank offices, based on BSP data. The central bank had said rural banks gain an edge as they open more micro-banking offices in areas deemed not feasible for business by universal and commercial banks.

The total number of banks slipped to 632 at end-2015 from 648 in 2014, but is coupled with a rise in bank branches to 10,124 from 9,713 previously.

“There will be less rural banks in terms of number because of consolidation and mergers but it will be stronger players,” Mr. Pasia added.

The central bank has been lobbying for small-scale lenders to consolidate to further improve its financial position and trim the number of bank closures. It closed down a total of 14 rural lenders last year.

In December, the BSP came out with guidelines for the Consolidation Program for Rural Banks (CPRB) -- which runs until Aug. 25, 2017 -- allowing a group of at least five provincial lenders to apply for a merger in order to boost its financial standing through their combined assets and capital.

The BSP regulates the country’s banking system, and may order the closure of problem banks especially if found without enough liquid assets to cover its liabilities or have turned incapable of sustaining its operations without causing losses to depositors.

BSP Governor Amando M. Tetangco, Jr. said in a recent speech that rural banks should pave the way for more farmers and fisherfolk to tap formal credit channels, which would allow greater financial inclusion while also letting lenders fortify their hold among provincial clients.

“You are still in areas where other players are not. Take advantage of this position to strengthen your foothold so that you will be more resilient when competitors come,” the BSP chief said, adding that rural banks can be ideal channels for granting more loans to the farming sector.

Currently, rural banks serve as the platform for bigger banks to fulfill their required 25% credit quota to the farming sector, as captured under the Agri-Agra Reform Credit Act of 2009.

The lenders could also serve as the platform for small and medium-scale enterprises to secure funding for their business expansions through microfinance.