As an ex-banker and now someone who is specialising on promoting foreign investments to the Philippines, the opportunity for foreign investors to invest in rural banks is a missed opportunity to help in the country’s development. Unlike the other type of banks (universal, commercial and thrift banks) which are bigger in size, rural banks are the financial institutions in the countryside where majority of the people live and bulk of the economic activity (agriculture) is based. Most rural banks are a one branch institution usually owned by a family who is a member of the local community and doesn’t need a credit bureau check to know each of its client. Unfortunately, the same advantage is also a handicap as its growth is limited to the amount capital given by the owning family. Foreign investment could have been another option but is not possible due to law. Still, there may be other options available to address their needs in a creative way. Watch this space.
From BusinessWorld Philippines
November 21, 2012
SPRB Plus deals under way
TWO deals are in the works under the Strengthening Program for Rural Banks Plus (SPRB Plus), and more are expected with the expanded set of perks available to white knights.
The Bangko Sentral ng Pilipinas (BSP) is already processing the two deals, BSP Managing Director Chuchi G. Fonacier said at the sidelines of a Rural Bankers Association of the Philippines symposium on Tuesday.
She did not name the participating banks but said “they are big banks acquiring rural banks.”
SPRB Plus was launched in August to encourage mergers and consolidations in the rural and thrift banking industry. White knights can receive a host of incentives when they rescue ailing banks, ranging from financial assistance from the Philippine Deposit Insurance Corp. (PDIC) or regulatory relief from the BSP. The program runs until December 2013.
The first SPRB was launched in 2010 and expired in August. Six deals involving 12 rural banks were approved, and two banks are set to receive financial assistance within the year, said PDIC Vice President Josefina J. Velilla during the same event.
The BSP and PDIC expect greater success from the enhanced SPRB compared to the original program.
“We expect a bigger turnout of applications and, hopefully, approvals.
SPRB Plus is open to more investors and it also offers branching incentives, which could be important to white knights,” Ms. Velilla said.
Universal, commercial and thrift banks, as well as non-bank corporations and groups of companies, are “eligible strategic third party investors” in ailing rural and thrift banks under SPRB Plus. The previous program allowed only rural banks to rescue fellow rural banks.
Rural and thrift banks may merge or consolidate with or purchase the assets and assume the liabilities of weak rural and thrift banks, while universal and commercial banks and non-banks may acquire a controlling stake in ailing banks.
Approved deals are eligible not just for financial assistance, which are in the form of preferred shares and direct loans, but also branching incentives.
Special branch licensing fees will be waived by the BSP, equivalent to the amount of capital contributed by white knights. Thrift banks pay P15 million, and universal and commercial banks, P20 million, to be able to establish a branch in so-called “restricted” areas in Metro Manila.
Furthermore, depending on how much branch licensing fees are waived, thrift, universal and commercial banks may establish branches in restricted areas for free.
They are also entitled to an extra incentive in the form of an additional branch license in restricted areas for free.
Rural banks can establish branches outside Metro Manila equivalent to the number of branches of the acquired bank or banks. Branch processing fees and capital requirements will be waived. In addition, they will be entitled to a branch license for every three banks rescued.
“Rural banks, since they are mostly family-owned, tend to be reluctant to sell, but SPRB Plus has opened up their options. With these incentives, now may be the right time to sell,” Ms. Fonacier said.
“Supposing SPRB Plus does not spur more deals than SPRB, it will get more in terms of the worth of the deals,” she added.
Rural banks shared the optimism of regulators, even as they identified stumbling blocks with SPRB Plus.
“Branching incentives will be the clincher, especially for big banks that want to establish their presence outside Metro Manila. Rural banks dominate the provinces, but the playing field is getting more even now,” said Lillian S. Vergara, Rural Bank of Mexico, Inc. general manager.
Issues remain, though, especially in the negotiations between white knights and rural banks.
“Many owners still take long to decide whether they want to let go of their rural banks,” said Teresa M. Ganzon, Bangko Kabayan, Inc. managing director.
Moreover, white knights are confronted with a “wide range of values” when ailing banks name their selling price.
“Sometimes, the selling prices are based on sentiment and not financial logic. Even when their net worth is negative, they still expect white knights to shell out money for them,” Ms. Ganzon said.
The strict documentary requirements — including lists of officers and qualifications, financial statements and business plans — could also weigh heavily on applicants, she added.
The BSP and PDIC will undertake a roadshow for SPRB Plus next week to capitalize on growing interest in the program in other regions.
Officials will visit Cebu on Monday to meet with banks in the Visayas, while a trip will be made to Davao next month to meet with those in Mindanao.