09.16.2011
The Monetary Board of the Bangko Sentral ng
Pilipinas (Bangko Sentral) and the respective boards of the Philippine
Deposit Insurance Corporation (PDIC) and the Land Bank of the
Philippines (Land Bank) recently approved a coordinated incentive
program designed to support the development of a stronger cooperative
banking sector. Dubbed as the
Strengthening Program for Cooperative
Banks (SPCB),
the program encourages mergers, consolidations with or
acquisitions of cooperative banks (CBs), particularly those that are
capital deficient, by eligible Strategic Third Party Investors (STPIs)
under a specific set of guidelines. The program was conceived in close
consultation with the cooperative sector and responds to the call by its
Congressional representatives for more support to the sector.
Mergers, consolidations, management and acquisitions under this
program are aimed at rationalizing the cooperative banking sector to
bring about larger and stronger cooperative banks whose management, more
solid capital position, and wider branch network would enable them to
improve their services to cooperative members, deepen their reach into
the countryside, mobilize savings, and spur lending activities in the
unbanked and the underserved areas. The SPCB offers a variety of
incentives to cooperative banks and their partner STPIs, and these
include targeted financial assistance to augment capital, credit
facilities to support business expansion, and a package of regulatory
relief.
The capital support component is to be made available through a
financial assistance from the PDIC and the Land Bank. Through the SPCB,
surviving banks, which should be
cooperative banks or banks at least
67% owned by cooperatives, are expected to have a much improved capital
position with a networth of at least P100 million and a minimum
risk-based capital adequacy ratio (RBCAR) of 15%, that will place them
in a better position to expand their lending activities and provide a
wider variety of innovative financial services especially catered to
primary cooperatives and their members.
Equity will be infused by the PDIC and Land Bank into the STPIs to
neutralize the potential adverse impact of asset write-downs that are
essential to clean up the books and ensure that surviving banks are
strong and capable. Equity infusions will come in the form of
perpetual, non-cumulative preferred shares, convertible to common shares
at the end of 10 years. An exit mechanism provides for the buy-out of
government shares after 10 years. In addition to equity infusion,
credit facilities will also be made available by Land Bank to enable
STPIs to further scale up their operations at an accelerated rate.
The complementary regulatory support package provided by the Bangko
Sentral, on the other hand, would further enable the surviving banks to
expand their operations. The regulatory support package includes
flexibility in the opening, conversion and relocation of bank offices,
including head offices, flexibility in ownership limits, more liberal
guidelines that would allow staggered booking of required valuation
reserves, waiver of penalties as may be appropriate, and the
restructuring of existing rediscounting and emergency loans with the
Bangko Sentral.
The SPCB will run until August 2012. Eligible STPIs may be
cooperative banks, thrift banks, rural banks, primary cooperatives or
federations of cooperatives provided such entities have a CAMELS rating
of at least 3, are not under the Bangko Sentral's Prompt Corrective
Action Framework and have not been cited by the Bangko Sentral or the
PDIC to have engaged in any unsafe and unsound banking practice. Where
the STPI is a rural or thrift bank, the bank should also be at least 67%
owned by cooperative banks, primary cooperatives and/or federation
cooperatives. In case the STPI are primary cooperatives or federations
of cooperatives, a certification or endorsement of good standing from
the Cooperative Development Authority will be required in addition to a
proven good track record based on their audited financial statements.
To qualify for the SPCB, one or more eligible STPIs should merge or
consolidate with or acquire one or more cooperative banks or those banks
that are capital deficient.
As of 31 March 2011, there are 40 operating cooperative banks in the
country with resources aggregating P15.9 billion. While the assets of
the cooperative banking sector accounts for only a small fraction of the
assets of the entire banking system, it plays a vital role in the
financial system since almost all of these 40 cooperative banks operate
in the countryside, provide the much needed financial services to
hundreds of primary and federation cooperatives and their individual
members who usually face difficulties in accessing banking services.
The same cooperatives and the large number of their individual members
are the stockholders or owners of cooperative banks. Thus, there is
much social benefit in revitalizing this particular segment of the
banking system.
The SPCB is also not only about financial incentives. Beyond
mergers, consolidations or acquisitions, the eligible STPIs are also
expected not only to sustain and continue to improve the capital base,
but also to further strengthen the quality of corporate governance and
management systems thereby making such banks that serve the cooperative
sector truly sustainable, viable and efficient.
The operating guidelines for the implementation of the program will
be jointly issued soon by the Bangko Sentral, the PDIC and Land Bank.
Already, even before the said guidelines are released, strong
expressions of interest to participate in the program have been received
from a number of players in the industry, indicating the strong
buy-in of the cooperative sector. The SPCB is a clear manifestation of
the recognition of the government, through the Bangko Sentral, the PDIC
and Land Bank, of the important role that the cooperative banking
sector plays in making our financial system stable and truly inclusive.
http://www.bsp.gov.ph/publications/media.asp?id=2687
