BSP tightens rules on 'white knights' in distressed banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has tightened the requirements for the entry of “white knights” or third party investors to address the capital deficiency and restore the viability of a distressed bank.

BSP Governor Nestor Espenilla Jr. issued Circular No. 1007 amending the guidelines on proposed investments from third party investors and requirements on transactions requiring prior Monetary Board approval involving additional subscription of shares of stocks in banks.

 “The BSP recognizes the indispensable role of banks in providing financial services to the public and their significant role in attaining sustainable economic development, while adhering to its mandate to safeguard and promote the stability of the financial system by ensuring that banks operate in a safe and sound manner,” Espenilla said.

For one, the BSP now requires “white knights” or third party investors to provide copies of documents showing the amount of the proposed investment deposited or placed in an independent bank such as certificate of escrow deposit or certificate of deposits with hold-out agreement.

The documents, the regulator said, should have a corresponding waiver of secrecy of deposits or investments.

The BSP said banks and third party investors are required to submit a joint certification signed by top officials that there is a pending application with the state-run Philippine Deposit Insurance Corp. (PDIC) under the consolidation program for rural banks (CPRB).

The central bank pointed out a mere submission of a letter of intent from a third party investor would not be sufficient to meet the required capital level.

“In this regard, it is understood that mere submission to BSP of a third party investor’s letter of intent to invest in the bank shall not be considered sufficient action to address the bank’s capital deficiency,” the BSP said.

The regulator, likewise, said the investment of the third party investor would not be considered for purposes of addressing the capital deficiency, if the aforementioned requirements are not complied with, except in cases when the ‘white knight’ exhibits strong financial capacity and firm commitment to address the capital deficiency of a bank.

In the case of additional subscription, the BSP said the bank should not recognize the fund infused by the subscriber in its book as asset and liability or equity unless prior Monetary Board approval is obtained.

The BSP would proceed with appropriate supervisory actions if the banks fail to submit the requirements to address their capital deficiencies.

On the other hand, BSP Deputy Governor Chuchi Fonacier said the circular clearly defines the requirements for third party investors not only in distressed banks, but also for banks needing additional capital.

In 2014, the BSP issued Circular 854 setting the minimum capitalization for universal, commercial, thrift as well as rural and cooperative banks operating in the country.

Under the circular, universal banks are required to meet a minimum capitalization of P3 billion for head office only to as much as P20 billion for those with more than 100 branches while commercial banks range from P2 billion to P15 billion.

On the other hand, a minimum capital of P500 million to as much as P2 billion are charged to thrift banks and P50 million to P200 million for rural and cooperative banks.