Foreign investors eye rural banks, insurance

MANILA, Philippines - Foreign venture capitalists are holding talks with Philippine rural banks and life insurance firms in another positive sign of strong optimism in the local economy.

1st Valley Bank president and chief executive officer Nicolas Lim admitted that the rural bank has been entertaining talks with a foreign venture fund interested in investing in the bank.

At the same time, Lim revealed that the bank has also applied for a thrift bank license with the Bangko Sentral ng Pilipinas (BSP).

1st Valley Bank is a rural bank based in Baroy, Lanao del Norte and servicing various areas in Mindanao, specifically the provinces of Lanao del Norte, Lanao del Sur, Misamis Occidental, Misamis Oriental, Bukidnon, Zamboanga del Norte, Zamboanga del Sur and Zamboanga Sibugay.

At present, the bank has 22 branches, five extension offices and three financial solution centers in Regions 9 and 10.

“That is true. We are talking with a foreign entity and that we have applied for a thrift bank license,” Lim said, adding that three more rural banks are in a similar situation.

While Philippine regulations disallow foreign equity into rural banks, 1st Valley is left with two options.

First, it should first get the thrift bank license before closing any equity deals with foreign venture capitalists. Or, the foreign investor can form a domestic company or joint venture, which would then invest in the rural bank.

The situation has similarities with the life insurance industry, which allowed the practice of bancassurance (or cross selling) as long as the expanded commercial bank acquires at least five percent equity into the life insurer.

As an alternative, banks and life insurers formed joint venture companies which, in turn, would engage in bancassurance, or the selling of insurance policies within the bank’s branch network, as well as dip into the bank’s client base.

Meanwhile, Philippine Prudential Life Insurance Co. Inc. is being courted by foreign venture capital for an equity investment deal.

While admitting that they are in talks, Phil. Prudential Life president and chief operating officer George D. Mercado refused to reveal details as the insurer was bound by a confidentiality agreement.

But Mercado said new equity would mean additional capital that would allow the insurer to meet new capital requirements by regulators.

 “We have been around for over 49 years, with over 1.8 million policyholders and an P83-billion business-in-force. Last year, Phil. Prudential Life recorded corporate history with over P1-billion in total premiums,” the chief executive said.

Recently, Incofin Investment Management and responsAbility Social Investments acquired 40 percent of Encash, a automated teller machine (ATM) provider focused mainly in thrift and rural banks.

Leapfrog Investment, a global venture capital fund, has been moving around the country with a $20-million package for investments in microfinance-oriented financial institutions.

 Venture capital from Singapore is likewise in the prowl for investment opportunities in Southeast Asia. With assets under management of over $10 billion at the start of the 21st century, Malaysia, Vietnam and Indonesia have reported taken a considerable share of venture capital attention.

Venture capital from Europe and the Middle East are likewise looking at South and Southeast Asia for equity investments, with bias in later-stage operations over start-ups. It is likewise keenly observing the merger and acquisition (M&A) market in China and Japan.

Investors from the Middle East, meanwhile, seem to have a bias for Islamic banking-compliant entities.