Special program to strengthen rural banks hits a snag
MANILA – A special program reinforcing the capability of rural banks to weather financial reverses has hit a snag, a Bangko Sentral ng Pilipinas (BSP) official said.
According to the Philippine News Agency, the plan proposing to allow both the BSP and the Philippine Deposit Insurance Corp. (PDIC) to invest in equal measure in ailing rural banks is hounded by legal issues that officials said should be resolved in full soon.
The program is called the Strengthening Program for Rural Banks or SPRB approved late last year to address in part the devastation left in the wake of the Legacy Group of Banks disaster years earlier.
The SPRB proposes to allow foreign participation in a sector that by law should only be engaged in by locals.
It also proposes to allow the PDIC and the BSP to put in equity in rural banks to help problematic entities get back on their feet.
Nothing prevents the PDIC from pursuing its end of the program but the BSP, which is seeking to put in half the equity needed to put back rural banks in the pink of financial health, can do so only if it breaks the law.
“The BSP cannot put it equity. Under the law the PDIC may put in equity by way of preferred share (subscription) but not the BSP,” Deputy BSP Governor Nestor Espenilla told reporters.
He would not tell how the dilemma has been tackled but Espenilla said they are close to resolving the practical problem of the legal prohibition on the part of the BSP.
The BSP rescues banks from financial perdition by extending so called emergency loans not to the ailing institutions themselves but to the PDIC.
In the matter of infusing equity in rural banks to boost their capital base, the undertaking was supposed to be split evenly to achieve a sharing of the burden but for the legal prohibition.
“But there is no disagreement on the principle of the loan. We are really working hard to get it out soon,” Espenilla said.
In November last year, the PDIC approved the adoption of the SPRB as part of broad efforts recognizing the role rural banks play as frontline enablers of economic growth in the countryside.
The following month, the BSP’s policy-making monetary board also approved the program and began the process of putting flesh to the plan.
