Landbank pushes rural bank consolidation

The state-owned Land Bank of the Philippines (Landbank) has proposed to consolidate a critical mass of the country’s small rural banks into one big entity that can rival universal banks in terms of capitalization.

Landbank is willing to contribute fresh capital to own 51 percent of the proposed “Apex Rural Bank,” which will have an authorized capital of P5 billion and become the vehicle for consolidation, Landbank president Alex Buenaventura said in an interview with the Inquirer.

Bunaventura said he submitted the proposal in January to the Rural Bankers Association of the Philippines (RBAP), which has more than 370 member-banks. The Landbank chief has given the rural banks two years to consider this proposal, which aims to help achieve long-term competitiveness and sustainability among rural banks.

“I told RBAP that instead of Landbank branching in these areas, why not put up a joint venture bank?” Buenaventura said, adding that the rural banks have until end-2018 to consider the offer.

Rural banks that will join the proposed Apex Rural Bank can contribute their business in exchange for shares in the bigger institution. Landbank can adjust its ownership depending on how much net assets the participating rural banks can pool.

“Apex is not an acquisition bank. It is a consolidation bank. There’s no selling of shares [for cash]. We need the resources, the branches, the human resource, the critical mass. It’s really a partnership,” Buenaventura said.

Being a former rural banker himself, Buenaventura knows the challenges of being a niche banking player. For two decades, he served as president of One Network Bank (ONB), a leading rural bank in the country. He led ONB through its consolidation journey from the synergy of three rural banks— the Rural Bank of Panabo (Davao), Network Rural Bank (Davao) and Provident Rural Bank of Cotabato. In 2014, the Consunji family sold ONB to BDO Unibank.

ONB would not have been competitive if not for its big capital that amounted to P4.8 billion at the time BDO bought the bank, Buenaventura said. “So big capital really is needed for a bank to be sustainable. And big capital to me is at least P5 billion,” he said.

Buenaventura estimated that average rural banks in the country would typically have a net worth between P50 million and P700 million. If participating banks do not have enough net assets to meet the 49-percent capital for Apex Bank, he said Landbank might have to increase its stake beyond 51 percent.

The consolidation scheme would also give weak rural banks a chance to find a “white knight” in Apex Bank, Buenaventura said. But even for the stronger banks, he said this would be an opportunity to be part of a more competitive entity, especially with the big banks now encroaching on rural banks’ traditional territories.

Buenaventura said Apex Bank could also upgrade the image of the rural banking industry, which had been stigmatized by a wave of closures in previous years.

For Landbank, Buenaventura said the proposed investment in Apex Bank would be an “inclusive branching strategy,” giving it a footprint in more cities and municipalities and thereby boosting its capability to pursue lending in the countryside.
To date, Landbank has about 362 branches nationwide, mostly in cities and first-class municipalities. “We definitely need to have presence in unserved areas for inclusive banking purposes,” Buenaventura said.

The Landbank chief said he had mentioned the Apex Bank proposal to the Bangko Sentral ng Pilipinas (BSP), which was supportive given its thrust to encourage consolidation in the banking industry.

Based on the BSP’s latest report on the banking system, rural and cooperative banks have a combined network of 1,707 branches as of the first semester of 2016. However, the BSP also noted that universal and commercial banks have extended their reach to areas considered as the home turn of rural banks, namely first to fourth class municipalities.