Former Bangko Sentral ng Pilipinas Governor Rafael Carlos Buenaventura, whenever he finds constituent banks reluctant to accept changes in the regulatory landscape, loved to tell his audience that one can bring the horse to water but cannot force it to drink. The memory of the well-loved regulator comes to mind because then, as now, some bank shareholders are reluctant to embrace change or reform measures even if the proposed changes were to benefit the shareholders themselves over the long horizon.

Then, as now, some shareholders resist trading old norms for new ones, resist the path to higher profitability, for instance, by keeping to the tried and tested but obviously inefficient methods of conducting the banking business. That is why it is always a pleasure to know every once in a while that a group of shareholders, reluctant they may be initially, finally gather the courage to embrace new ideas and new ways of doing business and forge ahead.

One shareholder group’s willingness to give up control helped transform an essentially one-unit operation into a multibillion-peso network that generated net profits approaching P300 million just a year or two after consolidating with other banks. At the recent anniversary symposium hosted by the Rural Bankers Association of the Philippines shareholders agreeing to fuse resources reaped benefits just a few years later that they would not otherwise enjoy on their own.

This story pertained to that of the Rural Bank of Panabo in Davao del Norte province, which morphed from a bank with only P25 million in assets to one with access to over P10.5 billion and servicing the banking needs of some 550,000 depositors instead of just a handful. The bank now forms part of the One Network Bank group with a string of 81 branches all over Mindanao, making it the largest rural bank on the island because its shareholders had the foresight that merger and consolidation among rural lenders was the way of the future and not the past.

According to Alex Buenaventura, former president at the bank, Rural Bank of Panabo was a recognized top-performing lender on its own but suffered from a “small capital” bank image no matter that its return on investment ratio or ROI, an indicator of profitability, stood at a high 30 percent each year.

But because the Buenaventura clan agreed to a 5-percent stock swap transaction with Network Rural Bank in 1999, the shareholders effectively gained access to a total six branches plus the central office facilities it shared with the Network Bank owners.

Four years thereafter, the merged units acquired Provident Rural Bank, made possible with the entry of the Diocese of Kidapawan which owns 49 percent of Pro Bank: effectively adding one more branch to the group and later successfully expanding this to 39 branches in all with combined capital of P648 million. Seven years later the Buenaventura’s, the Consunji group and the Diocese of Kidapawan realized the value of fusing their interest into a solid undertaking now known as One Network Bank with aggregate capital of P2.1 billion, all without the shareholders dipping into their pockets for additional equity.

Bangko Sentral ng Pilipinas regulations extend merging units a five-year exempt status from the gross receipt tax as incentive, permit them to book capital-boosting increment on bank premises and improvements of another P127 million, gave it access to the Philippine Clearing House Corp., a money changer license and recognized surplus reserves from the merging process as paid-up capital worth P357 million. ONB became the first rural lender to gain access to the facilities of the PCHC as a result of the merger and was given six more hard-to-get bank branch licenses from the BSP on top of that privilege.

All these became possible because the Buenaventura’s were willing to become minority shareholders, reducing their pre-merger equity representation from 80 percent to 14 percent. The Diocese of Kidapawan now owns only four percent of the merged lender with the Consunji group owning 74 percent. All three together uses their combined 92 percent equity share as a solid block of votes to advance the interest of everyone, including some 86,000 borrowers to which loans totaling P5.7 billion was extended. ONB employs a total 1,150 employees and makes available 104 automated teller machines all over Mindanao, as of June 2011.