Scaling up business operations

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In the recently concluded Annual National Convention of the Rural Bankers Association of the Philippines (RBAP), Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said a rural bank’s fundamental strength is its “familiarity with the grassroots and the community it serves.”

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But as the market evolves, Gov. Tetangco noted, familiarity, even as it is an advantage, may not be sufficient to guarantee operational viability of a rural bank. As the local community being served grows, so must the rural bank, which has invested in that community.

Rural banks now are up to the challenge to continue developing innovative products and services that can address the needs of their clients. They also have to think of ways of strengthening themselves in order to be able to fully serve the community.

Gov. Tetangco mentioned that buzzwords like “right sizing” and “streamlining” need specific contexts.

“It seems obvious that there is no universal standard, or ‘magic number’ that is out there. What is clear though is that as you make your decisions on what you deem is the right size for you, you must continue to be guided by the BSP’s regulations on the appropriate governance structures and risk management frameworks.”

To some, remaining as a single-unit rural bank is enough in order to serve its clientele. Some rural banks, however, are also considering the possibility of merging or consolidating in order to scale up their business operations, especially since there are more regulations that need to be complied with.

Although there exist government programs such as the Strengthening Program for Rural Banks (SPRB) Plus, a P5-billion undertaking extended up until December 2015 that encourages healthy banks to come to the aid of troubled peers, some rural banks feel the need to have a program wherein healthy ones among them could join forces.

During the convention, Philippine Deposit Insurance Corp. president Cristina Orbeta announced the PDIC’s Consolidation Program for Rural Banks (CPRB), which is available for two years.

According to Orbeta, it is important for rural banks to consolidate to be “better positioned to improve their financial strength, enhance long-term viability and generate better returns.”

“For banks with bigger capitalization, consolidation will enhance capability to provide more and better financial services to the people.”

The CPRB program will be available for ban ks as long as there is an agreement among
them that are merging/consolidating to accept terms and conditions of the program.

According to PDIC, those considered eligible under the program are at least 5 rural banks, whose head office or majority of branches are located in the same area. The resulting bank should have a risk-based capital adequacy ratio of at least 12 percent and its combined unimpaired capital should be at least P100 million. Other components of the CPRB program include financial advisory services, business process improvement services and capability-building support services.

The RBAP held its 62nd Annual Convention on May 18 to 19 at Isla Ballroom of Edsa Shangri-La Manila, with the theme “New Vision, One Direction, Stronger Organization,” which highlights the collection of challenges that beset today’s rural banking industry as it passes through a crossroad of business advancement or status quo.

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