BSP hikes minimum capital for rural banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is set to hike the minimum capital requirement for rural banks to at least P60 million as it further strengthens the banking sector amid theCOVID-19 pandemic.

In a draft circular, the regulator said it is amending the relevant provisions of the Manual of Regulations for Banks (MORB) aimed at increasing the minimum capital requirements for rural banks.

The central bank said the new minimum capitalization requirement is part of the initiatives under the Rural Bank Strengthening Program (RBSP), which was developed to enhance the operations, capacity and competitiveness of rural banks.

“It is anchored on the principle that a safe and sound bank is well-capitalized. A strong capital base enables rural banks to enhance their risk management systems, upgrade resources and manage operational costs, meet prudential standards and accelerate digital transformation,” the BSP said.

Under the proposal, the minimum capitalization of rural banks will be P60 million for those with a head office and only up to five branches and P200 million for small banks with more than five branches.

Branch-lite unit of rural banks are not included in the number of branches.

According to the BSP, rural banks that acomply with the new capital levels shall submit to the BSP a certification within 10 banking days from the date of effectivity of the proposed circular.

The regulator said rural banks that fail to meet the new minimum capital requirements shall refer to the available options under the RBSP.

“Rural banks availing of the capital build-up track shall submit to the BSP an acceptable capital build-up program within three months from the date of effectivity of this circular,” the central bank said.

Under the current capital requirements, rural and cooperative banks are required to have a minimum capital of P50 million to P200 million depending on the number of branches in the National Capital Region as well as between P20 million and P80 million for branches in areas outside NCR.

Late last month, BSP Governor Benjamin Diok­no said the rollout of the RBSP aims to enhance the operations, capacity and competitiveness of the industry.

“We believe that the RBSP is necessary to boost the resilience of rural banks amid the evolving challenges in the banking system and to enhance their role in promoting inclusive growth,” Diok­no said.

Since the imposition of the COVID lockdowns in March 2020, the BSP has ordered the closure of 21 rural banks nationwide while two small banks surrendered their banking licenses to the regulator.

In support of the BSP’s goal to promote a safe, sound and resilient financial system, Diokno said the RBSP would run for three years from the date of approval by the Monetary Board.

The RBSP features five time-bound tracks, namely, merger and consolidation; acquisition/third party investment; voluntary exit/upgrade of license; capital build-up, and supervisory intervention.

Incentives may include support for digitalization, financial advisory, prudential relief or support measures, and fiscal incentives, which will be carried out in partnership with relevant agencies and multilateral development partners such as the Asian Development Bank.

For the consolidation and mergers of rural banks, the BSP has processed 18 transactions for mergers, consolidations and acquisitions since 2020. Half of the total number of transactions involved rural banks.