The Philippine banking landscape is undergoing a fundamental shift, driven by the growing role of mergers, consolidations, and acquisitions (MCA). For rural and thrift banks, MCA are no longer viewed as exceptional events undertaken only in times of distress. Instead, they are increasingly recognized as strategic, and in many cases necessary, responses to structural changes reshaping the financial services sector. This evolving reality was at the core of P&A Grant Thornton’s recent Industry Pulse Series session, “Fundamentals of Mergers and Acquisitions for Rural and Thrift Banks”, which explored why consolidation is accelerating, what buyers and sellers must consider, and how value is ultimately created through disciplined execution.
Several converging forces are driving the renewed focus on MCA among rural and thrift banks. First, capital, technology, and governance expectations are rising. Regulators, customers, and counterparties increasingly expect stronger capital buffers, robust risk management frameworks, and modern digital capabilities. For many smaller banks, meeting these expectations independently can be both costly and operationally challenging.
Second, the cost of staying small or remaining largely analog is increasing. Investments in core banking systems, cybersecurity, compliance infrastructure, and talent are becoming essential just to remain competitive. As margins tighten, the economics of scale become more compelling, which makes consolidation a viable path to sustainability.
Finally, consolidation, in certain circumstances, becomes a necessity. Rather than reacting to regulatory pressure or financial stress, forward-looking institutions are exploring MCA proactively as a means of strengthening resilience, expanding capabilities, and positioning themselves for long-term relevance.
Understanding the Accounting Foundations of MCA
Before diving onto how MCA helps thrift and rural banks, a clear understanding of accounting treatment is critical to any successful merger or acquisition. From an accounting perspective, mergers or consolidations typically apply business-as-usual accounting until the transaction becomes effective or until a merger or consolidation is recognized in the financial statements. During this period, careful preparation is required, including potential SEC registration and alignment of financial reporting requirements.
Acquisitions, on the other hand, are generally accounted for using business-as-usual accounting unless the transaction qualifies as a share-for-share transaction with no impact on shareholder equity. The acquisition of unissued shares typically results in the recognition of capital infusion, while acquisitions involving issued shares may have different equity and reporting implications. These distinctions are highly important, as they affect financial statement presentation, capital adequacy, and post-transaction integration planning.
The MCA landscape: What we are seeing today
The current MCA landscape in the rural and thrift banking sector reflects both consolidation and diversification. On one hand, consolidation remains a policy-backed theme, with the number of rural bank head offices continuing to decline as mergers and closures reshape the sector. The Bangko Sentral ng Pilipinas (BSP) continues to encourage stronger balance sheets and better-governed institutions through consolidation initiatives.
On the other hand, deal types are becoming more diverse. In addition to traditional mergers and consolidations among banking peers, the market has seen an increase in acquisitions by third-party investors, platform-driven digital bank groups, and hybrid models that combine traditional banking licenses with fintech capabilities. A notable trend is the “buy-a-bank-to-go-digital” pattern, where fintech or digital-first players acquire stakes in rural banks to accelerate entry into regulated banking, bypassing the lengthy process of securing a new license.
Recent activity also suggests that this momentum will continue, with multiple MCA transactions announced in recent years and more expected as structural pressures persist.
What digital-led buyers look for first
For digital-led buyers, the initial screening process goes first, and before price discussions even begin, buyers typically assess a set of “first-screen” criteria. These include clean governance and a fit-and-proper board structure, deposit stability and Current Account and Savings Account (CASA) potential, loan book transparency and documentation quality, and the credibility of provisioning practices. Data readiness, particularly the integrity of core systems and the availability of reliable portfolio history, is also a key consideration.
Importantly, successful MCA outcomes begin long before a deal is announced. Institutions that evaluate their strategic readiness early gain greater control over pricing, structure, and the narrative surrounding the transaction. Many deals fail not because the price is wrong, but because integration is delayed, superficial, or under-resourced.
Why rural banks are attractive to digital investors
Rural banks occupy a unique position in the financial ecosystem because it makes them particularly attractive to digital investors. Acquiring an existing rural bank provides a faster path into regulated banking compared to building a bank from scratch. This accelerates time-to-market while leveraging an established supervisory framework.
Operational optionality is another key advantage. Branch networks can be retained, redesigned, or rationalized that enable banks to shift toward high-touch service points complemented by digital-first models. From a funding perspective, a rural bank’s CASA base can become a strategic advantage when scaled through digital channels, supporting lower funding costs and improved margins.
Equally important is trust. Local community brands often enjoy strong customer relationships built over decades. This trust can significantly reduce customer acquisition friction compared to purely digital entrants, particularly in underserved or regional markets. At the same time, integrating technology and analytics allows investors to professionalize operations while preserving local market strengths.
Creating value beyond the announcement
In rural and thrift banking, value is rarely created at the point of announcement. Instead, it is realized through disciplined execution after the transaction closes. While macroeconomic conditions may provide temporary tailwinds or headwinds, long-term survival depends on structural competitiveness.
Post-MCA integration is where synergies are unlocked through aligned systems, streamlined processes, consistent governance, and a unified risk culture. Due diligence and valuation serve as the deal’s “truth serum,” protecting buyers while strengthening sellers who can demonstrate transparency and readiness. The focus increasingly shifts from closing the deal to ensuring that the combined institution can deliver sustainable performance.
Financial reporting considerations in MCA
Financial reporting is one of the central roles in MCA transactions. Institutions must understand business combination structures to identify the appropriate MCA accounting, whether following the acquisition method, pooling of interests, equity method, or asset acquisition accounting. Determining control, significant influence, or the absence thereof requires careful judgment and affects consolidation, measurement, and disclosure.
Equally important is the alignment of financial reporting systems, policies, and procedures post-transaction. This includes consolidation processes, internal controls, and consistent application of accounting policies across the combined entity, foundations that are essential for regulatory compliance and investor confidence.
Regulatory, compliance, and tax implications
MCA transactions are governed by a complex legal and regulatory framework. Compliance with applicable laws and regulations is essential to avoid delays or invalidation. There must be a clear understanding of the different types and structures of mergers and acquisitions, as each carry distinct legal, tax, and operational consequences.
Tax implications extend beyond income tax. While certain transactions may be exempt from capital gains tax, VAT, or documentary stamp tax, other taxes, such as DST on share issuance or local transfer taxes on real property, may still apply. Proper documentation, including monitoring of substituted basis, is essential for ongoing compliance.
Beyond compliance, thorough due diligence and thoughtful integration planning remain indispensable. Identifying hidden liabilities, assessing asset quality, and planning for
post-merger integration ultimately determine whether an MCA transaction delivers its intended value.
From P&A Grant Thornton’s experience working with rural and thrift banks, successful MCA transactions are those approached early and holistically. Beyond deal execution, banks benefit from assessing MCA readiness well before a transaction is contemplated as it strengthens governance, improves financial reporting discipline, and addresses regulatory and tax considerations upfront. This is a proactive approach that allows our clients to better manage valuation expectations, reduce execution risk, and focus on post-merger integration, where alignment of systems, controls, and operating models ultimately determines whether strategic objectives are achieved.
As the banking sector continues to evolve, MCA will remain a defining feature of the rural and thrift banking landscape. When approached strategically, supported by robust financial reporting, and executed with discipline, MCA can serve as a powerful tool for resilience, innovation, and growth. The challenge—and opportunity—lies not just in making the deal, but in building a stronger institution after it.
As published in The Manila Times, dated 28 January 2026
