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April 19, 2024

Regulator eyes higher capitalization for rural banks

Rural banks are expected to raise their minimum capital at least P60 million as part of the efforts of the Bangko Sentral ng Pilipinas (BSP) to further strengthen the banking sector amid the COVID-19 pandemic.

The regulator has circulated a draft circular that aims to amend the relevant provisions of the Manual of Regulations for Banks (MORB) aimed at increasing the minimum capital requirements for rural banks under the Rural Bank Strengthening Program (RBSP).

“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.

The BSP intends to raise the minimum capitalization of rural banks to 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.

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 (NCR) as well as between P20 million and P80 million for branches in areas outside NCR.

Rural banks that fail to meet the with capital levels, the BSP said are entitled 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 BSP explained.

The central bank has rolled out of the RBSP 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,” the BSP chief said.

The central bank’s Monetary Board has so far ordered the closure of five problematic banks this year including Metro-Cebu Public Savings Bank, Rural Bank of Mahaplag (Leyte), Rural Bank of Salcedo (Ilocos Sur), Rural Bank of San Lorenzo Ruiz (Siniloan), and Rural Bank of San Nicolas (Pangasinan).