Rural banks as white knights?

From a potential acquiree, rural banks may soon find themselves as a possible acquirer this time around.
In a dramatic twist of events, well-capitalized rural banks are now in a position to acquire ailing cooperative banks.

This came about after the Bangko Sentral ng Pilipinas (BSP), Philippine Deposit Insurance Corp. (PDIC) and Land Bank of the Philippines have extended the incentive program that encourages mergers and acquisitions involving coop banks, dubbed as the Strengthening Program for Cooperative Banks (SPCB) Plus. The Program now expands the eligible strategic third party investor or STPI to include strong and well-managed rural banks and thrift banks, in addition to commercial banks, primary cooperatives, and federations of cooperatives.

Previously, only thrift and rural banks at least majority owned by commercial banks, primary cooperatives or federation cooperatives were allowed to avail of incentives under the SPCB.

According to the BSP, the enhancement will further strengthen the cooperative banking system, boost confidence in the banking system, and improve the delivery of financial services to the countryside and rural communities.

Available until September 17, 2014, the SPCB Plus will replace the original SPCB Module II, which expired on August 3, 2012.

It offers a variety of financial and regulatory reliefs and incentives to improve the prospects of new banking partnerships. Financial assistance may be granted by PDIC and Land Bank to boost capital shortfalls and provide income support to the surviving banks. On the other hand, the BSP offers a package of regulatory reliefs and branching incentives for eligible strategic third party investors.

Previously, rural banks are the recipients of a joint BPS-PDIC undertaking designed to encourage M&As in the rural banking industry, under the Strengthening Program for Rural Banks (SPRB) Plus, which expands the original SPRB to include strong and well-managed thrift banks and commercial banks as among the potential white knights.

Among the early returns in terms of news in this regard were the acquisition by Rural Bank of Angeles (RBA), a subsidiary of Asia United Bank, of all the assets of Cooperative Bank of Pampanga (CBP), as well as the investment by Bridge Financial Services of Singapore of $24 million in rural banks through M&As, capacity building or capital raising.

The SPRB Plus offers a number of financial and regulatory relief and incentives to improve the prospects for success of new banking partnerships. Financial assistance may be granted by PDIC to augment capital shortfalls and attract new investors. On the other hand, the BSP offers an expanded package of regulatory relief and branching incentives for commercial, thrift and rural bank that step forward as white knights.
With these two programs in tow, pundits expect a more dynamic banking industry this 2014.