Rural Banks and Competitiveness: a Perspective
*CONFEDERATION OF CENTRAL LUZON RURAL BANKERS: ANNUAL MANAGEMENT CONFERENCE “RURAL BANKS: TRANSFORMING RISK MANAGEMENT INITIATIVES INTO A COMPETITIVE ADVANTAGE”
March 1-2, 2016, Holiday Inn Clark
*CONFEDERATION OF SOUTHERN TAGALOG RURAL BANKERS: ANNUAL MANAGEMENT CONFERENCE “BRIDGING THE GAP- AN OPEN FORUM”
March 9, 2016, Marriott
The themes of both conferences reflect the concern that many Rural Banks (RBs) have over increasing competition. While there is no immediate threat from the ASEAN Economic Community (despite inevitability), there is strong concern for the aggression bigger domestic banks are exercising toward markets currently shared with their rural cousins.
Clearly, the pie of big corporates that big banks can compete over is no longer enough. The PHP 170 Billion credit gap in the SME pie, on the other hand, is irresistible. One vital scenario is that good RB clients might also defect in favor of better interest rates. Given how larger banks have the ability to provide superior services, these performing clients are seen as lower hanging fruit for bigger banks who can branch out to them. Said banks are also wasting no time in going after RB-serviced Small Medium Enterprises (SMEs).
While RBs are aware and consequently agitated by the upcoming competition, there is hesitation at adopting new processes and technology. Strengthening linkages between profitability, process and people is pursued by some but still a foreign concept to many. Thus their vulnerability.
For some who spoke at the forum, there is an air of fatalism that few will admit borders on the expectation of inevitable demise. The thought of implementing necessary change to longstanding traditional processes is simply exhausting to the average RB. The thing holding everything back is the mindset that technology is an expense - and an unnecessary one. The assumption being that given their current personnel and customers lack technological user skills, it of course follows that these potential users also lack the initiative to learn affordable technology and the usage thereof in aid of superior processes and credit decisions.
Another complication: It does not help that many in the RB industry view current government regulation as a hurdle instead of a leverage to improved standards and heightened operational and financial performance. BSP Deputy Governor Nestor Espenilla presented facts showing the association between regulation compliance and bank performance. It is not surprising to find that these better performing banks have also embraced regulation through the technological integration.
These progressive banks lead the pack! They saw what their customers needed in the current market and acted to supply. Thus, they are confident about their customer relations and decisively leverage the market advantage of the Rural Bank - intimate knowledge of the communities they serve. More importantly, they use technology as an aid towards deepening customer relationships. They do not underestimate their customers and instead reach out to see what their clientele can handle. These beliefs establish a moat around their domain that staves off competition from larger banks.
Many RBs have to make the transition to a progressive stance immediately. Consolidation of smaller banks is always an option. But consolidation without a commitment to improve competitiveness in the context of innovation will fail to ensure sustainability.
Technology is the answer. There is a huge opportunity to simplify, objectivize and standardize processes. Adapt. Innovate. Free up time to gather and use local knowledge intelligently and serve up new products specific to your markets. The frontier of globalization is coming and so many are in no shape to compete. It is business unusual.
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