Changing attires from parochial to regional

The rural banking system will continue its long and twisted road to consolidation and expansion this year, as the ground work for its strengthening and modernization, intensifies.

In the past two to three years, rural banks have slowly shed its parochial character, thinking more regional, more national. They already took the cudgels in developing and financing the microfinance sector, after clear successes with the small and medium enterprises (SMEs).

Last year, key initiatives were undertaken to bring the rural banking system closer to the "dream" of transforming rural banks into "regional banks" or community banks.

The rural banks tapped the services of telecoomunications giant–Globe Telecommunications Inc.– for its simple but effective electronic banking program. Among the beneficiaries of the program are the families of overseas Filipino workers (OFWs).

The link with Globe Telecoms also indicate that the banking system was looking for new forms of banking products other than the traditional deposit-taking and lending products.

And true to form, rural bankers tapped the services of First Metro Investment Co. for the professionalization and possible consolidation of the industry. First Metro Investment is a member of the Metropolitan Bank and Trust Co (Metrobank) group.

The non-banking financial arm of the Metrobank group was also tapped to help banks develop and introduce new banking products, reduce non-performing assets (NPAs), develop its treasury departments, and look for new investment products and opportunities.

It had also worked closely with the Bangko Sentral ng Pilipinas (BSP) and other government agencies to improve corporate governance based on international standards.

Recently, it forged an alliance with technology-based private groups and local government units (LGUs) to increase its services not only in its localities, but also expanding its reach to migrant Filipinos.

"The partnerships we have forged with the government and other agencies and private entitites have given us access to financial resources that enabled us to provide more loans to our constituencies in the rural areas," William Hotchkiss III, president of the Rural Bankers Association of the Philippines (RBAP), said.

For this year, rural banks several major consolidations that would reduce anew the number of operating rural banks. But it is expected to result in several bigger banks that are better capitalized, professionally-run with wider reach locally and internationally.

There are roughly 750 rural banks nationwide as of end 2004. From 18 rural bnaks in 1953, the sector balooned to a record level of 1,033 in 1982. But since then, it had slowly been reduced.

Already, seven major rural banks expressed intention of expanding its resources which include mergers or acquistions. They have already tapped the services of First Metro Investment for professional and technical advice.

There had been interest expressed by domestic and foreign investors in acquiring equity into rural banks. The BSP expressed support in that direction for as long as it retains the constitutional limits for foreign capital and ownership.

Hotchkiss said that their strategic dream was for the rural banks to be transformed into community or region banks that are fewer but better equipped to services a wider client base, geographically and sectorally.

"The parochial image of rural banks must shift to a more progressive orientation in many facets - in its operational capacity, in its product development and service delivery, in its technological infrastructure, to mention to more salient ones," the RBAP president said.

Coincidentally, the Chamber of Thrift Banks (CTB) are also looking in that direction.

Admittedly, the process will be a slow and strenuous one.

"It will be an evolutionary process. But the process can be hastened with the BSP offering or improving incentives for consolidation of the banking system, and growth of the community or regional bank concept," he said. "There must be a lot of education and training; there must be acceptance by the rural banking system; there must be professional help for the appropriate tools."

The immediate target of the rural bankers is to be handlers of remittances, to gain access to foreign capital, and ralize amendments to the charter of the rural bank system.

The BSP had already embraced in principal allowing rural banks to serve as venues for handling of foreign exchange (forex) for business and particularly for remittances. However, trading of forex is another issue.