THE CENTRAL BANK will soon extend microfinance-oriented banks the option to convert to become regular thrift or rural lenders, following a series of reforms introduced by the regulator to open up the Philippine banking sector.
The Bangko Sentral ng Pilipinas (BSP) through Circular 929 said it will
“allow the conversion of microfinance-oriented thrift banks (TBs) and rural banks (RBs) to regular TBs and RBs as well as the conversion of their microfinance-oriented branches to regular branches,”
effectively lifting the ban set under the Manual of Regulations for Banks in 2008.
The new circular was signed on Oct. 28 by BSP Governor Amando M. Tetangco, Jr. and was posted on the central bank’s Web site over the weekend.
Based on the new rule, microfinance-oriented banks and branches may convert as regular lenders once they complies with a number of requirements, which include submitting a certified true copy of a resolution from the bank’s board of directors that authorizes its shift into a regular bank.
In addition, the bank’s president must issue a certification to say that the requirement of allocating at least half of total loans to micro-credit is
“no longer feasible due to changes in market condition,” the BSP said.
The bank officer must also provide a market study to illustrate such a change in conditions, alongside a strategic business strategy for moving up as a regular bank.
“must also change its business name to reflect its reclassification,” according to the circular.
Microfinance-oriented banks are scaled-down bank offices meant to cater to the needs of small depositors, and are authorized to conduct “limited” banking activities such as releasing small-scale loans, serving as bills payment centers, selling microinsurance products, and exchanging foreign currency.
Prior to this amendment, microfinance banks are “disallowed” from converting to thrift and rural banks. Meanwhile, micro-bank branches can only scale up as regular offices after five years of operations.
Last year, the Monetary Board approved an incentive package for banks that will establish presence in far-flung areas in the country. The BSP also removed processing fees for putting up branches in unbanked areas, in a bid to prod more lenders to set up shop there and broaden access to financial services.
The central bank has been working to liberalize the local banking system.
In February, the BSP announced that it will “gradually” lift the 17-year-old moratorium for the opening of new banks and branches in the country, ahead of the plan to fully reopen the sector to new players by 2018. First, thrift banks will be allowed to apply for licenses to scale up and operate as a universal or commercial bank until mid-2017. By Jan. 1, 2018, the ban on new licenses will be fully lifted for all financial entities.
Under these rules, microfinance-oriented lenders can also apply to put up a new branch after just one year of profitable operations, but subject to possible additional capital requirements to be set by the Monetary Board.
The relaxed rules are seen to assist local banks to position themselves better as foreign players come in, following the signing of Republic Act 10641 that allowed the full entry of foreign banks.