Rural banks seen merging ahead of integration

DAVAO CITY — Consolidations and mergers among rural banks are expected as they prepare to compete with those of other countries under the Association of Southeast Asian Nations (ASEAN) economic integration next year.

Myanmar’s fresh start a chance for inclusiveness, banker says
Financial integration pushed
Bank M&As seen accelerating
Benefits seen from ASEAN integration
Employers eye impact of ASEAN integration

At the Rural Bankers Association of the Philippines’ (RBAP) national convention, which opened here on Wednesday, Chuchi G. Fonacier, supervision and examination managing director of Bangko Sentral ng Pilipinas, said several rural banks have been negotiating lately to consolidate or merge.

“There is an appetite for that. They have recognized that they need to strengthen their financial conditions for them to be able to compete,” Ms. Fonacier told BusinessWorld on the sidelines of the two-day event.

She said rural banks must be creative so they can provide products that are needed by their communities; there is no single template that the banks need to follow because the areas served are diverse.

“It is always a challenge to tap the market, so they must come up with products that suit the places where they are,” she said.

Ms. Fonacier added that there are about 10 small banks now that are in discussions on possible mergers and consolidations but declined to name any of them, in order to not pre-empt negotiations.

The country’s central bank has come up with the Strengthening Program for Rural Banks program, which provides incentives to those that would merge or consolidate. Launched in 2010, the program encourages rural banks and thrift banks to merge with bigger banks or be acquired by major third-party investors.

The program provides incentives to those involved in the transactions in terms of relaxed capital and possible preferred share, or loans from the Philippine Deposit Insurance Corp. The program is set to end by the end of the year.

Ms. Fonacier said rural banks must also be able to improve their risk management systems so they can compete with similar enterprises in other countries within the ASEAN. She said the industry must prepare for the integration in order to compete for the 600-million-strong consumer market in the region.

In order for the rural banks to compete, Ms. Fonacier said there is a need “for stakeholders to make necessary adjustments” in running their banks.

“It is really in the risk management system that [poses difficulty] and their governance [mechanisms],” she added.

Vittorio Z. Almario, RBAP president, told BusinessWorld that member-banks have been looking at mechanisms to improve their systems, particularly in addressing risks because of low capital.

“We keep on improving our systems so that we will be able to compete, not just with others that may come in but also with other institutions that offer similar products,” Mr. Almario also said. — Carmelito Q. Francisco