Dennis Gaviola

Article (news)

Salve Ibaňez

ABS-CBN News

Somebody is calling the Bangko Sentral ng Pilipinas anti-competition, anti-innovation, enforcing elistist restrictions over rural banks in favor of digital banks. One competition law expert has argued that the draft circular the BSP has sent out for comment regarding tech-driven rural banks is anti-competitive, effectively making the rural bank acquisition route less attractive for investors — including, pointedly, the foreign-backed players the BSP itself has been courting for the next wave of digital bank licenses. But I&#x27;ll be honest: I read that particular argument as coming from someone whose client can no longer play the arbitrage game. Uyyyy, intriga.My source says the BSP is unfazed. The central bank is ready to issue the circular any time, but since the feedback deadline is February 25, 2026, it is first putting together all stakeholder comments so that it can address each one.So let&#x27;s back up and analyze where the storm began — and what arbitrage game we&#x27;re talking about.The chasm between the cost of acquiring a rural bank and the capitalization required of a digital bank tells the whole story: P50 million to P200 million depending on the number of branches, versus P1 billion.If you&#x27;re a businessman, you have to admit the play is elegant — in a predatory sort of way. Acquire a single-branch rural bank for roughly P50 million, inherit a legitimate BSP license, deploy a digital platform, and onboard customers nationwide — all while operating under prudential requirements designed for a lender serving a few municipalities. Several players took this route and, for a few years, enjoyed it.The digital banks that played by the rules — Maya, GoTyme, Tonik, OwnBank, UNObank — spent years and hundreds of millions of pesos to meet the P1 billion capital threshold, build cybersecurity infrastructure, and submit to full supervisory scrutiny. That heavy compliance burden is one reason profitability takes time to achieve — a pattern consistent with global experience even in more advanced markets.<div>WHY SO STRICT?</div>And yet those requirements exist for good reason. In an age when technology makes money move faster than rumors, a regulator&#x27;s first instinct — and first duty — is to look at the risks and protect depositors.This is why the BSP&#x27;s draft circular deserves more than a David-and-Goliath reading. Yes, some are casting it as a tragedy: the small rural banker who answered the BSP&#x27;s own call for digital financial inclusion, only to be slapped — yes, slapped, in keeping with the Pinoy drama analogy — with a one-billion-peso capitalization ultimatum and a hard 30 percent cap on clients who live outside her geographic location.But here&#x27;s the tea: the BSP isn&#x27;t saying &quot;stop going digital.&quot; It&#x27;s saying &quot;if you&#x27;re going to operate like a digital bank, you need to be regulated like one.&quot; That isn&#x27;t a geographic restriction. It is risk management in proportion to actual exposure.A rural bank with P50 million in capital that has digitally onboarded 10,000 customers across Luzon, Visayas, and Mindanao carries the operational risk exposure of a digital bank while maintaining the capital buffer of a barangay cooperative. That gap — a 20-fold chasm — is exactly where depositors get hurt when things unravel. The <a href="https://www.abs-cbn.com/business/11/10/19/bsp-closes-ama-rural-bank-maximum-savings-bank" rel="noopener noreferrer" target="_blank">AMA Rural Bank of Mandaluyong </a>is sitting right there as Exhibit A: rural bank closed, depositors in limbo for years, BSP still mopping up the mess in 2026.I am not a bank examiner, but I covered the Bangko Sentral as a business reporter long enough to enjoy putting myself in their shoes from time to time. When a rural bank goes digital at scale, its risk profile transforms fundamentally. You&#x27;re no longer dealing with a branch treasurer who knows every borrower by name. You&#x27;re dealing with anonymous digital onboarding, potential money laundering vectors, cybersecurity vulnerabilities, and a deposit base that can run — literally run — at the speed of rumors. A rural bank running nationwide digital operations on P50 million in capital has essentially built a skyscraper on a bahay kubo foundation.Once I got over the genius behind the arbitrage, I had to admit: backdoor entrants poaching the market at a fraction of the regulatory burden is a legitimate grievance. The BSP is right to close this loophole.<div>FIGHTING CHANCE FOR SOME?</div>Now here is where the circular gets complicated — and why the industry of rural bankers is asking for some fine-tuning.I heard directly from bankers and investors that at least two institutions — Salmon Bank (formerly Rural Bank of Sta. Rosa, Laguna) and Netbank (formerly Community Rural Bank of Romblon, the country&#x27;s first banking-as-a-service platform) — are positioned to meet the P1 billion requirement. Their backers give them a fighting chance at the cliff face. <div><iframe width="640" height="360" src="https://www.youtube.com/embed/1DGceC30uvU?&amp;wmode=opaque&amp;rel=0" frameBorder="0" allowfullscreen="" class="fr-draggable"></iframe> </div>Salmon Group, the Singapore-based fintech firm, counts the World Bank Group&#x27;s International Finance Corporation and Abu Dhabi&#x27;s sovereign wealth fund ADQ among its investors.But for the broader universe of rural banks that have genuinely embraced digital tools for financial inclusion — without the backing of a Singaporean fintech or a sovereign wealth fund — the requirements are devastating and the following questions deserve honest answers.Do you divert precious resources toward building capital for a P1 billion threshold, even when global experience consistently shows that digital-only banks take years to turn a profit? Do you freeze mobile app development mid-build? And how do you implement the 30 percent rule when your loyal depositor base includes the Batangueño family whose children moved to Manila for school, or whose parents became OFWs, and who still bank with you because your rates are better and your service is warmer than anything in the big city?There is another gap that urgently needs filling: the circular has not defined what &quot;physical areas of operations&quot; actually means in geographic terms. The municipality? The province? The island group? One rural banker told me directly — without that definition, banks may be forced into mergers that make no operational sense, compelled to open branches that serve no real depositors, or pushed toward the worst option of all: fudging client address data to stay below the 30 percent threshold. That last scenario should alarm every bank regulator in the country.And oh, what does digital really mean? A mobile app? Website? Ability to transfer money from BPI to rural bank?<div>THE 30 PERCENT QUESTION</div>Why 30 percent? What is the actual correlation between out-of-area customer ratios and NPL rates, fraud incidents, and liquidity stress events among rural banks? Could the threshold defensibly be 40 percent? 50 percent? A higher ceiling with graduated compliance requirements would be far less likely to punish genuine financial inclusion champions for the sins of regulatory arbitrageurs.THE BSP&#x27;S REAL MESSAGEThe consultation period closes today. The real work — calibrating the threshold, defining geographic boundaries with precision, and creating a sensible on-ramp for good-faith banks that cannot overnight become billion-peso institutions — now begins. The BSP has identified the problem. Rural bankers are praying that the final circular will be surgical enough to protect depositors without punishing the banks that tried to do the right thing.

Have you noticed how some rural banks have been rebranding and transforming themselves into digital banks?

Have you noticed how some rural banks have been rebranding and transforming themselves into digital banks?

Boardroom Tea: A fintech storm is brewing as the BSP tightens standard for digital banking

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Boardroom Tea: A fintech storm is brewing as the BSP tightens standard for digital banking

Salve Ibaňez,

ABS-CBN News

Published February 26, 2026 08:05 PM PHT

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Updated February 27, 2026 12:16 PM PHT

Read More:

digital banks

fintech

rural bank

BSP

Salve Ibanez

Boardroom Tea

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