BSP amends rules on foreign investments in rural banks

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has issued amendments to the implementing rules and regulations of the Rural Bank Act, which allows foreigners to invest in rural banks.

In a circular, the central bank adopted the rule allowing foreign individuals to own up to 60 percent of a rural bank.

“For rural banks, non-Filipino citizens, excluding foreign banks, may each or in the aggregate, own, acquire or purchase, up to sixty percent (60 percent) of the voting stocks in a rural bank,” the BSP said.

Qualified foreign banks are also allowed to own as much as 60 percent of the voting stock of rural banks, provided that aggregate foreign-owned voting stock do not exceed 60 percent of the outstanding voting stock.

Foreign banks are selected on the basis of their capacity, global reputation and stability, as provided under the central bank’s rules.

Foreigners are also allowed to sit on the board of rural banks, according to the BSP circular.

“Non-Filipino citizens may become members of the board of directors of a bank to the extent of the foreign participation in the equity of said banks,” the circular indicated.

However, it was stressed that majority of the bank’s board of directors should still be Philippine residents.

The Rural Bankers Association of the Philippines in May welcomed the passage of the bill into law, saying this puts rural banks in a better financial position to service Filipinos in the countryside.

Allowing foreigners to invest in rural banks will provide the small banks more sources of capital to improve their services.

Last year, the BSP shut down 24 banks, mostly rural banks, after they were found to have had insufficient capital to support operations.

The BSP and the Philippine Deposit Insurance Corp earlier put in place a scheme – the Strengthening Program for Rural Banks – whereby third parties can acquire troubled rural banks in exchange for tax and other incentives, such as exemption from restrictions on additional branches in overbanked areas.