The participation of foreign interests as bank shareholders is inevitable and should come to pass within five years, if not sooner, a senior rural bank official said.
According to Tomas Gomez IV, GM Bank president and only recently top honcho at the influential Rural Bankers Association of the Philippines, said it is no secret that the rural banking system is expanding and getting more profitable, and that foreign interests have been looking at it with a view to taking equity positions.
He told the BusinessMirror money should come pouring into the sector within the next five to 10 years, as the local investment climate has changed rather dramatically over the past serveral years and that ownership laws now allow foreign interest actually to own banks.
“At least once a month, I get an e-mail or telephone call from foreign investor groups wanting to take a look at the Philippines. They want to be briefed on the rural banking system in the Philippines. They are from Europe, the United States, India and Hong Kong. You see that they are already scouting around,” he told the BusinessMirror.
“In the next five to 10 years as rural banks consolidate—as smaller banks form into much bigger banks—more capital is needed and that’s when foreign investments will come in. In the next five to 10 years you’ll see more transactions of interested foreign investment groups getting into rural banks,” he said.
According to Gomez, the rural bank sector is ripe for consolidation. The change in market dynamics, competition and stringent regulation are driving rural banks to become stronger, more competitive, more viable banks serving the countryside, including farmers, small and medium enterprise (SMEs) and micro -entrepreneurs.
“Getting there will require a lot of change, so you’ll see a lot more consolidations and mergers. Larger rural banks are buying or merging with small rural banks,” he added.
At present, there are 530 rural banks nationwide, less than half from 1,200 rural banks about 30 years ago. The decline in number was brought by mergers and consolidation.
“The number of rural banks will become substantially less in the coming years, but what you will have is much bigger, healthier, more diversified service, more sophisticated rural banks with large branch networks,” he said.
He is confident that after the consolidation phase, rural banks will become healthier, more competitive, and able to deliver far better services in greater areas in the country.
He sees a huge potential for expansion, as 30 percent of the towns and municipalities in the country have no banking presence.
He recalled that, 50 years ago, rural bankers set up shop in the countryside because no one goes there. About 95 percent of rural banks did not face competition at that time, because there’s only one rural bank in one town. If they had competition at all, it was with rural bank colleagues.
But over the past 30 years, the little towns have grown larger, inviting competition in the process.
Today, there are three to four rural banks, two thrift banks plus commercial banks operating even in some of the more advanced rural areas of the country.
“After 50 years, rural banks have proven that banking in the communities and that they have shown that rural banking is a sustainable business,” Gomez said.