MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is set to raise the minimum capital requirement for rural banks to at least 60 million pesos as it further strengthens the banking sector amid the COVID-19 pandemic. 19.
In a draft circular, the regulator said it was amending relevant provisions of the Manual of Banking Regulation (MORB) aimed at increasing minimum capital requirements for rural banks.
The central bank said the new minimum capitalization requirement is part of the initiatives of the Rural Banking Enhancement Program (RBSP), which was developed to improve 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 improve their risk management systems, upgrade their resources and manage their operational costs, meet prudential standards and accelerate digital transformation,” the BSP said. .
According to 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.
Light branch units of rural banks are not included in the number of branches.
According to the BSP, rural banks that comply with the new capital levels must submit certification to the BSP within 10 banking days from the effective date of the proposed circular.
The regulator said rural banks that do not meet the new minimum capital requirements should refer to the options available under the RBSP.
“Rural banks using the capital formation route must submit an acceptable capital formation program to the BSP within three months from the effective date of this circular,” the central bank said.
According to current capital requirements, rural and cooperative banks must have a minimum capital of 50 to 200 million pesos depending on the number of branches in the National Capital Region, as well as between 20 and 80 million pesos for branches located outside the NCR.
Late last month, BSP Governor Benjamin Diokno said the RBSP rollout was aimed at improving industry operations, capacity and competitiveness.
“We believe that the RBSP is necessary to strengthen the resilience of rural banks in the face of evolving banking system challenges 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 across the country while two smaller banks have surrendered their banking licenses to the regulator.
In support of the BSP’s goal of promoting a safe, sound and resilient financial system, Diokno said the RBSP would operate for three years from the date of approval by the Monetary Board.
The RBSP has five time-limited tracks, namely Merger and Consolidation; acquisition/investment of third parties; voluntary license exit/upgrade; capital building and supervisory intervention.
Incentives may include digitization support, financial advice, prudential relief or support measures and tax incentives, which will be implemented in partnership with relevant agencies and multilateral development partners such as the Asian Bank of development.
For rural bank consolidation and mergers, the BSP has handled 18 mergers, consolidations and acquisitions transactions since 2020. Half of the total number of transactions involved rural banks.