Consolidation Looms for Philippines Rural Banks Ahead of 2027 Deadline

Rural banks in the Philippines are expected to undergo a significant wave of consolidation over the next two years. It is all due to stricter capital requirements taking effect, the Asian Banking and Finance reported.

Approved by the Bangko Sentral ng Pilipinas (BSP) in 2022, these rules aim to create more resilient lenders by 2027.

However, they are likely to reduce the total number of institutions operating in the countryside.

This shift is particularly impactful for rural financial inclusion, as these banks serve as primary lenders to farmers and small businesses.

Jose Paolo Palileo, Chairman of Bayanihan Bank, Inc., describes the evolving landscape as “fewer but bigger”.

He noted that banks unable to meet the new thresholds will likely merge with stronger peers to shore up their capital.

The new regulations set specific minimum capital levels based on network size.

Banks with up to five branches must hold PHP 50 million. On the other hand, those with six to ten branches require PHP 120 million.

Lenders with more than ten branches must maintain at least PHP 200 million.

With the average rural bank currently holding approximately PHP 247 million, many smaller institutions have little buffer to manage these changes.

Digitalisation presents an additional challenge, with costs for basic digital services estimated between PHP 20 million and PHP 30 million. Currently, only 19 of 370 rural banks participate in InstaPay.

Furthermore, lenders wishing to convert into digital banks must raise PHP 1 billion by October 2027.

Consequently, fintech-linked groups like MariBank, Salmon Bank, and BillEase have already begun acquiring rural banks to pursue digital strategies.

While the Rural Bank Act of 1992 originally envisioned capital support from state lenders, industry leaders observe that this backing has faded, making consolidation almost unavoidable.

Featured image: Edited by Fintech News Philippines based on images by user8285578 via Freepik and juankarlo via Unsplash.

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