The Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corporation (PDIC) are set to finalize the implementing guidelines of the Strengthening Program for Rural Banks (SPRB) which was approved by the PDIC Board on November 11, 2009 and the Monetary Board a month after.

The SPRB, a joint initiative of the BSP and PDIC, will be funded by a P5-billion financial assistance to be contributed by the BSP and PDIC in the amount of P2.5 billion each.. The incentives under the SPRB will be made available for two years. 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 as well to ensure long-term viability of rural banks.

Nograles said that the need to assist the rural banking industry has become evident after the spate of rural bank closures. One of the areas PDIC initially considered was to enhance the Countryside Financial Institution Enhancement Program (CFIEP) to make it more responsive to the needs of rural banks. Another venue considered was to collaborate with the BSP in crafting a new program. BSP and PDIC decided to craft a new program, which is more responsive to the needs of rural banks and affords more flexibility in implementation. “PDIC encourages the rural banks to merge and consolidate. By providing the rural banks the appropriate and necessary incentives, it is hoped that the rural banks’ long-term viability will be enhanced”, Nograles added.

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 strategic third party investor (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. Availment of the SPRB is subject to a joint coordinated evaluation by PDIC and the BSP.

The financial assistance to be granted under the SPRB 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.

“The rural banks comprise the bigger chunk of the total number of banks in the system at about 86% and their contribution to countryside development should be supported by encouraging them to merge and consolidate to attain economies of scale, achieve higher lending capacities and improve the quality of their banking services particularly in their niche markets. We are confident that our partnership with the BSP to assist rural banks through the SPRB will help ensure the efficiency and effectiveness of rural banks in mobilizing savings and investments toward a robust economy particularly in the countryside”, Nograles said.