Rural banks seek lower capital cover

MANILA, Philippines - The Rural Bankers Association of the Philippines (RBAP) is seeking a lower capital cover for operational risks from 15 percent to 12 percent of gross revenues.

At the same time, the rural bankers urged the full implementation to be extended from 2011 to 2013 on a staggered basis.

RBAP president Joseph Omar Andaya said they are discussing these concerns with the Bangko Sentral ng Pilipinas (BSP). “They are very receptive, very flexible and always willing to dialogue. But everything is still under discussion,” he said.

Taking the cue from existing international standards set by the Basel II framework, the BSP requires rural banks to maintain a 15 percent cover to be fully implemented by 2011 to ensure the rural banks, which number over 800, are adequately capitalized.

Andaya said the rural bankers are in full agreement with the BSP requirement but are asking for “a little breathing space.”

Aside from lowering the cover, Andaya said the rural bankers want its implementation staggered. Starting next year, one percent cover will be implemented followed by another two percent in 2011, and then an additional three percent every year until 2013.

BSP Deputy Governor Nestor A. Espenilla Jr. said the regulator will continue to hold discussions with the banks until an agreement is reached.

“The banks want a little breathing space but they are willing to implement the regulation,” Espenilla said. “There is nothing definite, everything is still being discussed.”

Meanwhile, the Monetary Board (MB) is set to approve the P2.5-billion counterpart fund of the BSP for the P5-billion financial assistance and regulatory support facility spearheaded by the Philippine Deposit Insurance Corp. (PDIC).

The P5-billion financial package was established to encourage mergers, acquisition or consolidation within the rural banking system.

In previous years, the BSP and the PDIC have raised billions of pesos in financial or bail out packages for several commercial banks, some of which are still active.