Posted on June 20, 2011 08:52:26 PM
BY ANN ROZAINNE R. GREGORIO, Reporter
RURAL BANKS are urged to hasten mergers or consolidations to create stronger banks that will not only provide better products and services to clients, but more importantly, compete with commercial banks that have started to branch out to the countryside, the incoming president of the association of rural banks said.
Rural banks are urged to merge or consolidate in order to improve products and services to clients such as market vendors. -- JONATHAN L. CELLONA
“Five to 10 years from now, commercial banks are expected to fully saturate urban areas, so the next step for them is to enter the countryside to continue their business expansion,” said Ian Eric S. Pama, the incoming president of the Rural Bankers Association of the Philippines (RBAP), in an interview last Thursday.
Mr. Pama, also president of the Valiant Rural Bank, Inc. based in Iloilo, replaces Ma. Corazon Liamzon-Miller, whose term as RBAP president ends this month.
The central bank is encouraging rural banks to merge or consolidate to create stronger, more professionally-run institutions. Among the banks it supervises, rural banks are most prone to collapse.
Bangko Sentral ng Pilipinas data showed a total of 607 rural bank head offices as of December 2010, down from 631 in December 2009 due to mergers and consolidations and closure of weaker players.
The central bank, together with the Philippine Deposit Insurance Corp., has instituted the Strengthening Program for Rural Banks (SPRB), a P5-billion program that will run until next year, to spur mergers or consolidations among rural banks. It has also issued orders raising rural banks’ minimum capital requirement and requiring a capital adequacy ratio of at least 10% beginning 2012.
“Big commercial banks have not yet fully penetrated the countryside, they may still be studying how to build their business there,” Mr. Pama said. “But once they enter our market, they could capture some of our market share.”
The Rizal Commercial Banking Corp. (RCBC) and the Bank of the Philippine Islands (BPI), he noted, have launched their respective microfinance operations, encroaching into a business that used to be dominated by the rural banks.
“RCBC and BPI are among the big banks that have started to go into microfinancing in the countryside. Other big banks are expected to follow their footsteps in a few years,” Mr. Pama added.
RCBC conducts its microfinance business through subsidiaries President Jose P. Laurel Rural Bank, Inc. based in Tanauan City and Rizal Micro Bank, formerly Merchants Savings & Loan Association, Inc., based in Mindanao.
BPI has BPI Globe BanKO, Inc., which extends microfinance loans through Globe Telecom Inc.’s GCASH e-money platform.
The big banks can steal rural banks’ market share for one, Mr. Pama said, by giving lower interest rates.
“The big banks can ‘sacrifice’ one branch in the countryside just to capture the market. They make up for their loss in other areas where they can offer higher interest rates,” Mr. Pama said. “This will be the greatest challenge for rural banks, especially stand-alone rural banks.”
Mergers and consolidations among rural banks, he said, will result in a stronger capital base for the new bank, more branches and better technology, which will enable the banks to serve more clients as well as provide them with better credit facilities and products.
Rural banks are known for their expertise in serving the countryside, where they offer products such as micro-agri loans, micro-housing loans and micro-insurance.
“Rural banks have long been urged by the central bank and the RBAP to merge or consolidate to strengthen the rural banking industry, but some refuse to do so,” Mr. Pama noted.
“Usually, rural bank owners who are not amenable to the idea are those who have a stand-alone bank and yet are operating profitably,” he pointed out.
He said RBAP will continue to promote the SPRB program among its members through road shows to make rural bankers understand the “intricacies” of the industry, which he said, is operating within “a very competitive environment.”
Mr. Pama, also president of the Valiant Rural Bank, Inc. based in Iloilo, replaces Ma. Corazon Liamzon-Miller, whose term as RBAP president ends this month.
The central bank is encouraging rural banks to merge or consolidate to create stronger, more professionally-run institutions. Among the banks it supervises, rural banks are most prone to collapse.
Bangko Sentral ng Pilipinas data showed a total of 607 rural bank head offices as of December 2010, down from 631 in December 2009 due to mergers and consolidations and closure of weaker players.
The central bank, together with the Philippine Deposit Insurance Corp., has instituted the Strengthening Program for Rural Banks (SPRB), a P5-billion program that will run until next year, to spur mergers or consolidations among rural banks. It has also issued orders raising rural banks’ minimum capital requirement and requiring a capital adequacy ratio of at least 10% beginning 2012.
“Big commercial banks have not yet fully penetrated the countryside, they may still be studying how to build their business there,” Mr. Pama said. “But once they enter our market, they could capture some of our market share.”
The Rizal Commercial Banking Corp. (RCBC) and the Bank of the Philippine Islands (BPI), he noted, have launched their respective microfinance operations, encroaching into a business that used to be dominated by the rural banks.
“RCBC and BPI are among the big banks that have started to go into microfinancing in the countryside. Other big banks are expected to follow their footsteps in a few years,” Mr. Pama added.
RCBC conducts its microfinance business through subsidiaries President Jose P. Laurel Rural Bank, Inc. based in Tanauan City and Rizal Micro Bank, formerly Merchants Savings & Loan Association, Inc., based in Mindanao.
BPI has BPI Globe BanKO, Inc., which extends microfinance loans through Globe Telecom Inc.’s GCASH e-money platform.
The big banks can steal rural banks’ market share for one, Mr. Pama said, by giving lower interest rates.
“The big banks can ‘sacrifice’ one branch in the countryside just to capture the market. They make up for their loss in other areas where they can offer higher interest rates,” Mr. Pama said. “This will be the greatest challenge for rural banks, especially stand-alone rural banks.”
Mergers and consolidations among rural banks, he said, will result in a stronger capital base for the new bank, more branches and better technology, which will enable the banks to serve more clients as well as provide them with better credit facilities and products.
Rural banks are known for their expertise in serving the countryside, where they offer products such as micro-agri loans, micro-housing loans and micro-insurance.
“Rural banks have long been urged by the central bank and the RBAP to merge or consolidate to strengthen the rural banking industry, but some refuse to do so,” Mr. Pama noted.
“Usually, rural bank owners who are not amenable to the idea are those who have a stand-alone bank and yet are operating profitably,” he pointed out.
He said RBAP will continue to promote the SPRB program among its members through road shows to make rural bankers understand the “intricacies” of the industry, which he said, is operating within “a very competitive environment.”
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