The Market Monitor Minding the Nation's Business
After the complete buyout by Banco de Oro Unibank (BDO) of one of the country’s biggest rural banks (RBs), One Network Bank (ONB), the stage is set for the country’s biggest banks to enter micro, small and medium enterprises (MSMEs).
Valued at over P6 billion, the Consunji-led RB has been the leading RB entity in Mindanao since the early 1980s. Its assets are more than P20 billion, making it the biggest in its class, literally assets wise. “Now BDO controls it, the bank now has a solid grip on the island,” a top official of the Bangko Sentral ng Pilipinas (BSP) said.
“Banks are encouraged to lend. that is the essence of banking,” BSP Deputy Governor for the Supervision and Examination Sector Nestor Espenilla Jr. said.
Some critics say the entirely different credit underwriting of the MSME sector poses the biggest challenge for any bank that will dare to serve the sector.
Lourdes Jocelyn Pineda, senior vice president of the Rizal Commercial Banking Corp. (RCBC), said with an asset of over P1.5 trillion, there is no doubt that BDO can serve the sector. “It just needs to get special breed of credit underwriters to launch its mission,” Pineda said.
The acquisition of ONB is a stark contrast of what BDO President and Chief Executive Officer Nestor Tan said a year ago that the bank’s focus is to grow organically. Organic growth pertains to more branches, automated teller machines and depositors, not acquisition of new banks.
BDO is not the only universal and commercial bank that acquired an RB lately. Some two years, the Gotianun-led EastWest Bank also acquired Green Bank, also a top RB in assets. “There is a growing trend for UKBs (universal and commercial banks) to dealt with the smallest market. It might be small, but the concept is so big,” said Enrique Abellana, president of the Rural Bankers Association of the Philippines (RBAP). The banker said no matter how many UKBs enter the MSME market, their bank, RB of Barili (Cebu) Inc., is not for sale.
Like other critics, the RBAP president said the most difficult part of serving the MSME market is really the credit underwriting. Most of the banks, Abellana said, would rather lend to big corporations that have the capacity to pay. One bank that failed to deliver its mandate to lend to the MSME sector is the Development Bank of the Philippines (DBP).
The Industrial Guarantee and Loan Fund (IGLF), a unit of the DBP, has failed to disburse the full amount of its target for microloans totaling P1.2 billion.
Based on reports, the IGLF intended to approve and release more or less P1.2 billion for eligible MSMEs, but only 27.51 percent, or P330.142 million, was actually released during the period.
The IGLF said it has adopted measures to effectively and efficiently achieve its loan target for micro and small-scale borrowers. IGLF has released loans amounting to P3.341 billion out of P4 billion as of end-2014.
Of the amount, P2.257 billion was released as short-term loans, surpassing the IGLF projected release of only P1.2 billion. The IGLF added that P431.759-million loans went to microenterprises, P322.258 million were for medium- to long-term borrowers and only P330.142 million was allocated for microfinance loans.
The IGLF said the primary reason for the plunge in IGLF microfinance approvals and releases was the continuous nonimplementation of the approved omnibus credit line of the People’s Credit and Finance Corp. (PCFC)
The PCFC traditionally contributed about 40 percent of wholesale banking, translating to IGLF utilization.
The IGLF encourages all lending units of the DBP to give priority to industries or sectors that are powerful drivers of economic growth, employment generation and maximization of the total value chain, such as, but not limited to, manufacturing, tourism and agribusiness. Microfinance activities on the other hand, do not have value addition,” the Commission on Audit (COA) said.
The COA also said that, while loans and receivables recorded a net increase of P1.34 billion in 2014, the corresponding interest income registered a net decrease of P38.048 million.
“The management assured us that the IGLF will continue and push even harder to effectively and efficiently pursue and achieve its projected loan approvals and releases,” COA Director Emelita Quirante said.
The IGLF has total resources of P6.736 billion in 2014, higher by 0.11 percent than the P2.729 billion registered in 2013.
Net income declined by 25 percent to P104.035 million, lower than the P140.373 million recorded in 2013.
It is not only that the MSME market is underserved, it is also the biggest job provider in the country, according to the Department of Trade and Industry. Being the biggest job provider, it is not being reciprocated by banks as they are not well-served, according to Sergio Ortiz-Luis, president of the Philippine Exporters Confederation.
“It’s easier to lend to one big corporation that needs P200 million than to 100 small creditors. It will require banks to have 100 sets of people that will do the underwriting that banks don’t want to serve,” the official said.
As of 2012, there are 944,897 business enterprises operating in the Philippines. Of these, 99.58 percent (940,886) are MSMEs and the remaining 0.42 percent (4,011) are large enterprises. Of the total number of MSMEs, 89.78 percent (844,764) are micro; 9.78 percent (92,027), small; and 0.44 percent (4,095), medium.
Majority of the 940,886 MSMEs in operation in 2012 are in the wholesale and retail trade, repair of motor vehicles and motorcycle industries with 436,809 business establishments; information and communication, financial and insurance activities, and other service activities with 133,157; accommodation and food services with 126,108; followed by manufacturing with 117,601; human health and social services, professional scientific and technical, education, administrative and support services, arts, entertainment and recreation industries, and real estate with 105,927.
These industries accounted for about 97.74 percent of the total number of MSME establishments. Majority of the MSMEs in operation in 2012 can be found in the National Capital Region (NCR), with 210,576 business establishments; Region 4-A (Calabarzon) with 144,811; Region 3 (Central Luzon) with 105,331; Region 7 (Central Visayas) with 65,637; and Region 6 (Western Visayas) with 53,746. These top five locations accounted for about 61.65 percent of the total number of MSME establishments in the country.