the onb consolidation experience nov. 10 2011
TRANSCRIPT
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THE ONB CONSOLIDATION EXPERIENCE
by:Alex V. Buenaventura
presented to: RBAP ANNUAL ANNIVERSARY SYMPOSIUM
November 10, 2011Manila Hotel
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PRESENTATION OUTLINE
• RB PANABO BEFORE• APEX BANKING PROJECT FAILURE• RB PANABO NOW• “3 BANKS, 1 SYSTEM” HISTORY • WHY GIVE UP CONTROL ? • KEY INGREDIENTS FOR REPLICATION
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RB PANABO BEFORE
• P 25 Million in Assets• P 5 Million in Networth• Average ROI of 30 % per annum• Good BSP Audit Rating• Micro Deposits & Loan Products• Low Level of Computerization• “Small Capital“ Image • Profitable & Sustainable• 85 % Buenaventura Family Group Control
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APEX BANKING PROJECT FAILURE
RBAP-INITIATED APEX BANKING PROJECT FAILED BECAUSE THE 75 JOINING BIG RBs
REFUSE TO GIVE UP EQUITY CONTROL
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RB PANABO NOW
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• SHOW “THE BIG BANK” SLIDE
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BIG CAPITAL OF
P 2.1 BILLION
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BIG BANK SERVICES• PCHC Direct Clearing• MegaLink ATMs• P 500 M SBL• INTERNET BANKING ON PILOT• POS DEBIT PAYMENTS • FOREIGN REMITTANCE TIE-UPS
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SMALL ACCOUNTS BANKING
• 520,000 ACTIVE DEPOSITORS WITH AVE. DEPOSIT SIZE OF BELOW P 15,000 ONLY• 80,000 ACTIVE BORROWERS WITH
AVE. LOAN SIZE OF BELOW P 80,000 ONLY
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DepED-APDS Loans P 3.6 Billion Salary Loans to DepEd tru APDS (Auto Payroll Deduction System)
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BIG ACCOUNTS BANKING
• PREMIUM PRICING OVER COMMERCIAL BANKS ON TIME DEPOSITS• BIG SBL OF P 500 Million &
COMPETITIVE PRICING VS COMMERCIAL BANKS ON LOANS
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RB PANABO NOW IS…ONB…….THE WIDEST RURAL BANKING NETWORK
IN THE PHILIPPINES PROVIDING MODERN BANKING SERVICES TO SMALL & BIG ACCOUNTS
IN PROGRESSIVE RURAL AREASUNSERVED BY COMMERCIAL BANKS
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“3 BANKS, 1 SYSTEM” HISTORY
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The RB Panabo Expansion Problem
Cannot branch out due to absence of P 100Million Allowable CAPEX needed to create aCentral Office with complete support services :-Accounting -ICT & Data Center & DRC -Internal Audit -Product Dev. & Marketing-HR & Training -Legal & Collection-Treasury -ATM-PCHC Clearing -Credit Packaging
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The “2 Banks, 1 System” Solution From Network Rural Bank
• 5 % stock swap between RB Panabo & big capital Network Rural Bank in July 1993
• Both banks shared a common Central Office hosted in Network Rural Bank
• Result: RB Panabo put up 6 new branches without putting up its own Central Office
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The “3 Banks, 1 System” Tru Franchise Banking with ProBank
• In Nov 1997, Network Rural Bank invested 51 % and Diocese of Kidapawan invested 49 % in putting up Provident Rural Bank---the first “franchise bank”
• ProBank grew into a 7-branch operation in without putting up its own Central Office
• By end 2000, the “3-banks, 1 System” operation became a network of 39 branches
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WHY CONSOLIDATE ?
• TO BECOME BIGGER --- FROM 3 BANKS ALL IN THE TOP 10 RANKING, TO BIGGEST RURAL BANK IN ASSETS & CAPITAL
• ELIMINATE DUPLICATION OF BOARD MEETINGS AND HEAD OFFICES AND REPORTS
• TAX EXEMPTION Under RB Act• INCENTIVES for CONSOLIDATION: BRANCHES
& APPRAISAL INCREMENT (NOW WITH SPRB)
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The ONB Consolidation
In April 2004, or after 7 years of “3 banks, 1 system” operation, the 3 Banks were dissolved and consolidated into One Network Rural Bank, Inc. and became the largest Rural Bank in all aspects.
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TRIGGER FOR CONSOLIDATION
“After 7 years of living in, why not get married ?”
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Benefits/Incentives for Consolidation
• Tax Exemption from GRT for 5 years• Booking of Appraisal Increment on bank premises and
improvements ( P 127 Million )• Participation in PCHC Direct Clearing• 6 Branch Licenses• Money Changer License• Surplus Reserves Became Paid-Up Capital ( P 357
Million )• Authorized Capital Increased from P 648 Million to P
1.4 Billion without fresh capital infusion
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CONTROL PROBLEM & SOLUTION
• PREVIOUS DOMINANT CONTROL WILL BECOME SMALL MINORITY COMMON STOCK IN THE CONSOLIDATED BANK (I.E. FROM 80 % CONTROL BY BUENAVENTURAS IN RB PANABO TO JUST 14 % VOTING STOCK IN CONSOLIDATED BANK)
• SOLUTION: MAJORITY-MINORITY STOCKHOLDERS AGREEMENT TO REQUIRE MAJOR DECISIONS TO BE MADE TOGETHER AS ONE BLOCK (74 % CONSUNJI GROUP + 14 % BUENAVENTURA GROUP + 4 % DIOCESE OF KIDAPAWAN GROUP = 92 % SOLID BLOCK )
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KEY INGREDIENTS FOR REPLICATION
• Big Capital: At least P 500 Million Networth • Management Control by One Group: 51 % minimum voting stock control of one RB group
who will nominate the management team especially the President
• Majority-Minority Agreement : covering at least 67 % of the voting stock
• Consolidation of Equals: Net Asset Valuation Without Premium
• Like Minded Rural Bankers
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What should not have been done ?
The “multiple banks, one system” preliminary phase of getting to know each other is not necessary because it just prolongs the consolidation process and delays the achievement of consolidation benefits/incentives especially Big Capital leveraging .
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2nd CONSOLIDATION“ONE NETWORK RURAL BANK, INC.”
CONSOLIDATED WITH “RB NEW CORELLA, INC.” STARTING SEPT. 1, 2011
UNDER THE NEW BANK NAME “ONE NETWORK BANK, INC. ( A RURAL BANK)“
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FRANCHISE BANKING CHALLENGE TO FEDERATIONS
CONSOLIDATE MANY FEDERATION MEMBERS AND FORM A BIG RURAL BANK (FRANCHISEE) AND INVITE A NEW BIG INVESTOR BANK (FRANCHISER) TO PROVIDE 49 % FRESH CAPITAL AND INSTALL COMPLETE MODERN BANKING PRODUCTS & SUPPORT SYSTEMS.
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THANK YOU