Committed to further strengthen the rural banks, the Philippine Deposit Insurance Corporation (PDIC) is working on an incentive program for mergers and consolidations through a proposed P5-billion financial assistance and regulatory support facility it is hammering out with the Bangko Sentral ng Pilipinas (BSP).

PDIC President Jose C. Nograles said there is need for a rural bank strengthening program to enable these banks to sustain countryside development and maintain financial stability in the economy. Nograles said there is need to support the rural banks to ensure long-term viability amidst the global financial crisis.

“PDIC encourages the rural banks to merge and consolidate. By providing the rural banks the necessary incentives, it is hoped that the rural banks’ long-term viability will be enhanced”, Nograles added.

The PDIC President said the plan calls for incentives to be made available for two years from a P5-billion pooled fund.

The financial assistance to be granted by PDIC under the incentive program is a combination of preferred shares and direct loan to boost the capital of the bank. These preferred shares shall be non-voting, cumulative and convertible to common shares; and redeemable starting end of 5^th year but not later than the 10^th year.

Rural banks that are eligible for the incentive program are those whose risk-asset-ratio (RAR) is less than 10% and are merging or consolidating with an eligible strategic third party investor (STPI). To be eligible, the STPI should have a CAMELS rating of at least “3”, not under the prompt corrective action (PCA) program of the BSP and does not have findings of unsafe and unsound practices.

“The PDIC is committed to assist the rural banking industry in strengthening the rural banks and ensuring their long-term viability. The rural banks comprise about 86% of the total number of banks in the Philippine banking system and their contribution to countryside development cannot be underestimated. By encouraging them to merge and consolidate, these merged institutions will attain economies of scale, achieve higher lending capacities and improve the quality of their banking services particularly in their niche markets thus, help ensure the efficiency and effectiveness of rural banks in mobilizing savings and investments toward a robust economy particularly in the countryside. We are confident that our partnership with the BSP to assist rural banks through this Rural Bank Strengthening Program will result to a more accessible and resilient banking system”, Nograles said.