Philippine Deposit Insurance Corporation (PDIC) President Jose C. Nograles commended the rural banking industry’s resilience against a sluggish local economy and a devastating global financial crisis. He also lauded its commitment to spur growth in the countryside, citing the positive contributions of the industry to both the local and real economies such as total lending of P8-billion to micro entrepreneurial ventures.

At the 52nd Charter Anniversary Symposium of the Rural Bankers Association of the Philippines (RBAP) which was keynoted by President Gloria Macapagal-Arroyo, the PDIC President, in his speech, affirmed PDIC’s support to further envigorating the rural banking industry to ensure greater depositor protection and financial stability. He announced a P5-billion Strengthening Program for Rural Banks (SPRB) to be implemented in collaboration with the Bangko Sentral ng Pilipinas (BSP). This program seeks to enhance the long-term viability of the industry through mergers, consolidation and acquisition (MCAs).

The SPRB provides a financial assistance and regulatory support facility for rural banks. The financial assistance under the incentive program is a combination of preferred shares and direct loan to reinforce the bank’s capital. The preferred shares shall be convertible amounting to 50% of the capital adequacy of the bank being acquired. The direct loan shall be granted on a concessional rate payable in 10 years. The plan calls for incentives to be made available for two years from a pooled fund.

Nograles, an Executive Council member of the 54-nation International Association of Deposit Insurers (IADI), stressed that “a reasonable way to save banks in trouble is for them to come into strategic alliances with stronger ones from among their ranks, address their capital problem, and allow significant corporate reconstruction”. He said that this is a global approach to failure resolution adopted by financial regulators and like-minded institutions.

The PDIC President cautioned that capital restructuring alone will not solve the problem entirely. He said that bank strengthening will require viable business plans adhering to corporate governance practices such as periodic reporting, manualization of business processes and enhancement of management accountability and controls.

The SPRB has been recently approved by the PDIC Board. Monetary Board approval is expected soon.