PDIC seeks CFIEP extension

The Philippine Deposit Insurance Corp. (PDIC) wants an extension of the third module of the Countryside Financial Institution Enhancement Program (CFIEP). The said module offers incentives for mergers, acquisitions or consolidation of qualified CFIs.

PDIC officials admitted that they have already forwarded a memorandum to the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) recommending further extension of the program.

Module III provides incentives for qualified mergers, acquisitions or consolidation for undercapitalized CFIs, which are predominantly rural banks. Under the program, the government agency would provide an income spread to the surviving or consolidated CFI equivalent to 50-percent of the undercapitalized bank’s eligible non-performing loans (NPLs), real or otherwise properties owned and acquired (ROPOA), and unbooked valuation reserves as of end 2001.

"To qualify for Module III, the recipient bank should be an undercapitalized CFI or lead bank involved in a merger, consolidation or acquisition. It must also meet port-merger conditions," PDIC senior vice president Noemi R. Javier said.

In principal, the BSP is expected to give its nod as it has been encouraging the country’s banking system to strengthen its position versus the rest of the region’s institutions. Likewise, the call for mergers or consolidations is motivated by the weakening economic conditions in the face of the high level of bad assets plaguing the system.

It is particularly magnified in the rural banking sector, which has experienced a number of closures since last year.

Based on PDIC data, there were 429 closures as of yearend 2003. These comprised two commercial banks, 52 thrift banks and 375 rural banks, with an estimated realizable value of assets of about P14 billion as against liabilities of P36 billion.

However, two major consolidations or mergers were also registered in the two-year period. Noticeably, the surviving entities of the exercise are domiciled in Mindanao.

One Network Bank was formally launched last week after it completed approvals from the nod of both the Securities and Exchange Commission (SEC) and the BSP. It is a consolidation of three Mindanao-based rural banks, which are considered among the strongest in the rural banking system.

These are the Network Rural Bank (Davao del Sur) Inc., the Rural Bank of Panabo (davao del Norte) Inc., and the Provident Rural Bank of Cotabato (North Cotabato) Inc.

It was followed recently by a BSP approval of a merger between the Philippine Farmers Bank (Mindanao) and three Visayan-based distressed rural banks. The former would be the surviving entity.

Earlier, the MB approved the extension of the first two modules of the CFIEP. The program got the strong backing likewise of the Land Bank of the Philippines (LBP), the leading government financial institution extending credit to the rural and countryside.

The CFIEP provides incentives to investors in CFIs including rural banks. It was first introduced in 1995, extended in 1998, and again in 2000. The Rural Bankers Association of the Philippines (RBAP) and the LBP lobbied for an extension with the MB, and it was approved in last January.