In the face of the ever present stiff competition from the bigger banking brethren, rural banks need to rapidly evolve and “be big enough” to remain efficient and profitable.
Rural banks will continue to have a niche market in the ultra-competitive banking industry, even if a spate of mergers and consolidation shapes the future of the rural banking sector.
In remaining viable, rural banks are professionalizing their management and targeting well-defined niche markets using their inherent strengths as rural banks. By inherent strengths, it means capitalizing on banks’ knowledge and familiarity of the rural communities they serve. It likewise involves the training of rural banks in the area of microfinance to effectively serve their respective markets.
For instance, the technical arm of the Rural Bankers Association of the Philippines, the Rural Bankers Research and Development Foundation Inc. (RBRDFI), has been busy conducting microinsurance basic training courses for rural banks, to enhance their capacity to serve as effective access points for microinsurance services for its low-income clients, as well as ensure their compliance with relevant Bangko Sentral ng Pilipinas (BSP) regulations.
As a result, rural banks can now offer microinsurance services to all micro-borrowers and/or micro-deposit account holders as well as their family members as dependents. Rural bank clients can now qualify for the bank’s microinsurance services if they have either a micro-credit account or a savings account with an average daily balance of P15,000 or below. In effect, all qualified rural banks may choose to offer microinsurance services and apply for Microinsurance Agent license to cover their micro-deposit account holders.
Meanwhile, just in case there are rural banks that will not be able to compete effectively, there is a safety net program for rural banks that will afford them an exit mechanism, in the form of the Strengthening Program for Rural Banks Plus or SPRB Plus.
The BSP recently extended the program for another year up to December 31, 2014.
Prior to the extension, the Philippine Deposit Insurance Corp. (PDIC) has approved five merger applications involving 10 banks, which are being processed by the BSP. There are also a couple more applications waiting in the sidelines.
The SPRB Plus has amendments and enhancements that encourage more mergers and acquisitions of eligible rural banks and thrift banks by strategic third-party investors.
Among the amendments include the relaxation of the required ownership control in an eligible bank from 67 percent to at least 60 percent.
The financial assistance from the PDIC, on the other hand, may now be in the form of either a combination of preferred shares and direct loan, or direct loan only.
Thus, whether competition from commercial or universal banks remains daunting or the impending consolidation with prospective white knights feel intimidating, in the end, there will always be a market for rural banks all across small town Philippines.
The RBAP continues to work with partner regulators in creating a conducive banking environment that will serve as front-liners in financial inclusion programs. This is what will make a difference in the future. This is what will make rural banking remain relevant all across the Philippines.
The message is clear: the growing competition and the evolving business environment in the Philippines or across the region does not faze rural banks. Instead, we embrace them, we adopt technology, we evolve and adjust accordingly to continue endearing ourselves to our communities and giving them the legitimate, institutional financial services they require.