THE PHILIPPINE DEPOSIT Insurance Corp. has called for a concerted effort to strengthen troubled banks in the countryside, saying that, in the first half of the year alone, 179 rural institutions have already been placed under the central bank?s ?prompt and corrective action? program.

PDIC also said that 103 of the ailing banks were found to be under-capitalized.

The number of rural banks in financial distress is actually small, accounting for only 15 percent of the estimated 690 rural banks operating nationwide, PDIC Jose Nograles said.

However, he added that addressing the problems of the few would help save PDIC from reimbursing insured deposits, which could run up to billions of pesos.

The 103 ?capital deficient? rural banks collectively hold P11 billion worth of deposits, accounting for about 10 percent of total deposits generated by the entire rural banking sector.

A rural bank is placed under the Bangko Sentral ng Pilipinas? prompt and corrective action program if it is found to be engaging in unsafe and unsound banking practices, has governance problems, or it is capital deficient.

A bank is said to be capital deficient if its capital adequacy ratio (CAR) falls below the minimum 10 percent required by the BSP. CAR is the proportion of a bank?s capital to its estimated amount of assets that are exposed to various risks, such as risk of loan defaults by borrowers.

Banks under the PCA program are keenly monitored by the central bank, which directs the troubled institutions to implement reforms, such as those that will improve their financial standing and governance.

Nograles said PDIC has enough money to service potential deposit claims of clients of troubled rural banks. Currently, PDIC?s deposit insurance fund is over P60 billion.

But Nograles said that, as much as possible, PDIC would keep the deposit insurance fund intact.

He said PDIC and the BSP were preparing programs to help address problems of rural banks.

On the other hand, rural banks have also been asked to do their share in solving their problems.

PDIC is pushing for consolidation of the rural banking sector.

The PDIC board has already approved the allocation of P2.5 billion for the setting up of a P5-billion fund, which regulators may tap to provide incentives to ?white knights? that will acquire troubled rural banks, Nograles said.

The other P2.5 billion will reportedly come from the BSP.

PDIC will source its P2.5-billion share from the deposit insurance fund.

Under the plan, PDIC and BSP will provide financial support to firms willing to acquire banks in distress.

The amount of support the so-called white knights may receive will be equivalent to 50 percent of the amount of capital deficiency of the troubled bank.

?[Enter] into strategic alliances with stronger banks to address capitalization problems and allow significant corporate restructuring,? Nograles told members of the rural banking sector during yesterday?s convention of the Rural Bankers Association of the Philippines (RBAP).

But according to Tomas Gomez IV of RBAP, the rural banking sector remains healthy, and that those in trouble make up only a small portion of the whole.

Rural banks? average CAR is at 18.3 percent, way beyond the 10-percent minimum requirement, he said.