Two foreign institutions eye program for co-op banks in Phl

MANILA, Philippines - The coordinated incentive program launched by the Bangko Sentral ng Pilipinas (BSP) and state-run Philippine Deposit Insurance Corp.(PDIC) designed to support the development of a stronger cooperative banking sector in the Philippines has lured two of the largest financial service providers in the world.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters said Rabobank Group of Netherlands and DGRV – Deutscher Genossenschafts-und Raiffeisenverband e. V. of Germany have expressed strong interest in participating in the Special Program for Cooperative Banks (SPCB) by venturing into the local cooperative banking industry either through technical assistance or financial assistance.

Rabobank Group is an international financial services provider offering banking, asset management, leasing, insurance and real estate services serving about 10 million customers in 48 countries. In terms of Tier I capital, Rabobank Group is among the world’s 30 largest financial institutions.

On the other hand, DGRV is the largest economic organization in Germany with over 20 million members promoting and representing the mutual interests of its members and their affiliated cooperative institutions. It represents the concerns of all cooperative sectors in matters of economy, law and tax policy, and advises the organisation on questions of management organisation and data processing.

Espenilla pointed out that the mode of entry of the foreign financial institutions either through technical or financial assistance are still being finalized.

“They are interested in partnership. One is providing financial support, perhaps equity, perhaps loan, we don’t know yet because discussions are ongoing. They can come in and establish a guarantee fund perhaps or just provide outright technical assistance, consultancy, or how to run things better,” he said.

He explained that the purpose of the SPCB is to strengthen the industry by trimming the number to a nucleus of less than 10 well capitalized and well managed cooperative banks from the current number of about 40 banks.

The BSP, according to Espenilla, has noticed a strong weakening trend among cooperative banks and if the trend is not averted would result to the closure of several cooperative banks.

“A significant number of cooperative banks are experiencing weakness. But there are also a substantial number of strong, well-managed cooperative banks. This is all about partnering weak banks with strong banks so we will end up with a strong cooperative banking system,” he added.

Data from the BSP showed that there are 40 operating cooperative banks in the country with resources aggregating P15.9 billion as of end-March. While the assets of the cooperative banking sector accounts for only a small fraction of the assets of the entire banking system, the BSP said it plays a vital role in the financial system since almost all of these 40 cooperative banks operate in the countryside.

The SPCB that would be implemented together with the Land Bank of the Philippines would run until August 2012. It encourages mergers, consolidations with or acquisitions of cooperative banks, particularly those that are capital deficient, by eligible Strategic Third Party Investors (STPIs) under a specific set of guidelines.