REGULATORY REFORMS that will require bigger capital for rural banks which would encourage mergers may be detrimental to small lenders that have been affected by the pandemic, according to the Rural Bankers Association of the Philippines (RBAP).
“We agree that mergers and consolidations lead to stronger banks and a healthy rural banking industry. Though its intended goals are laudable, the timeline for implementation should be carefully reviewed as rural banks are still recovering from operational losses during the pandemic,” RBAP President Albert T. Concha, Jr. said in a Viber message.
Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno in March said they are in the final stages of reviewing the minimum capital requirements for rural banks, taking into account that a strong capital base will be crucial to address challenges faced by the industry.
The minimum required capital for rural banks starts at P10 million up to P200 million, depending on the location and the number of branches that will be set up by lenders.
Mr. Concha urged regulators to consider that smaller banks are in need of “extraordinary support” from the government amid the pandemic.
“Some rural banks may be unduly classified as undercapitalized due to loan loss provisioning brought about by temporary delays in collection from borrowers whose businesses have been affected by the pandemic,” he said.
“These setbacks may be temporary and does not necessarily mean that the rural bank is unstable.”
Based on central bank data, the gross nonperforming loan (NPL) ratio of the rural and cooperative banking sector stood at 12.84% as of end-2021. This was lower than the 14.67% NPL ratio a year earlier.
However, it was still much higher than the sector’s 10.48% NPL ratio seen at end-2019.
Meanwhile, Mr. Concha said that a survey among rural banks that have merged or consolidated showed that such transactions are very costly and time-consuming for small lenders.
“Some mergers actually fell apart while trying to consolidate due to the costs and pain points involved,” Mr. Concha said.
“Tax incentives and tax breaks coupled with an easier inter-agency government approval process will definitely encourage more rural banks to merge and consolidate,” he added.
The central bank said that they have closed the operations of 21 rural banks since the pandemic started in March 2020. It also processed nine rural bank transactions for mergers, consolidations and acquisitions in the same period. — Luz Wendy T. Noble