Banking on Farming

One Network Bank redefines countryside banking

By Nonette C. Climaco

It is not at all surprising that few banks choose to set up branches in the countryside. The distance is a logistical and security nightmare they would have to contend with.

For small farmers and micro entrepreneurs, going to a bank is hardly a convenience

For Filipinos who call the countryside their home, banking is hardly ever a convenience. For these folks, mostly farmers and micro entrepreneurs in the rural stretches of the country, banking means traveling more than 20 kilometers, filling up assorted forms, preparing all sorts of IDs and waiting for an hour or two to withdraw a few hundred pesos. ATM cards are the lot of the cosmopolitan few in the provincial centers, and will not likely be theirs to own in their lifetimes.

It is not at all surprising that few banks choose to set up branches in the countryside. The distance is a logistical and security nightmare they would have to contend with. The absence of needed infrastructure, from telecommunications to transportation is also a deterrent. Also, micro entrepreneurs are not always "bankable." Their requirements are too small but just as expensive to service as that of larger clients. To this day, most banks shun the countryside, preferring to gravitate instead to commercial centers of the different provinces.

One Network Bank President Alex Buenaventura

One bank is doing exactly the opposite. One Network Bank, the country’s largest rural bank, is deliberately going to locations other banks would not dare visit.
To date, it has the largest rural banking network in all of Mindanao, with branches in localities such as Maramag in Bukidnon and Lebak in Sultan Kudarat.

Alex Buenaventura, One Network Bank president, is confident the bank can continue servicing its countryside clients, and is looking at technology to help the bank in its expansion efforts.

Following the successful integration of its three progenitors in April 2004 Bank of Panabo, Network Rural Bank and the Community Rural Bank of Matalam – One Network Bank now has the financial firepower to invest in much-needed technology. With combined assets of P3 billion, it is able to pursue "bold, pioneering" pursuits that have allowed it to redefine countryside banking.

As expected, One Network Bank is starting its technological advancement with the ATM, which, basic as it may be, is still the logical solution to the micro-entrepreneurs various banking needs.

Thus, One Network Bank is working very quickly to provide its clients this essential banking tool. Mr. Buenaventura explains ATMs are needed to address its clients’ basic need to transfer funds and make necessary inquiries without clogging up the lobbies of its branches.

"There is serious overcrowding in the lobby," he points out, "and every year, there will be a request for more office space from the branches." Of course, the brick and mortar solution is not exactly cost-efficient.

Thankfully, technology has become very affordable, Mr. Buenaventura enthuses. In the past, provincial banks operated using a frame relay system, which required the presence of telecommunications infrastructure.

Today, this is no longer necessary. "VSAT makes it possible and affordable," he said. A refurbished ATM machine now costs just P850,000 to install, inclusive of the machine itself, civil works, communication lines and even the canopy. One Network Bank is targeting the installation of 14 ATMs a month, for a total of 83 by the end of 2005. First among its banks to go on satellite technology is a branch in Davao del Norte servicing mostly banana plantation workers of Stanfilco.

Farm workers and small businessmen are given an affordable alternative in Pera Agad ATM

Of course, the bank made sure that its products would be suited to its clients’ needs. "These are micro people. They earn daily," Buenaventura explained. Thus, the bank made sure that its ATM product, called Pera Agad ATM, would be affordable to most farm workers and small businessmen. With an opening requirement and maintaining balance of just P100 a month, Pera Agad ATM is within the reach of most people. To cover the bank’s costs, though, a fee of P2 is charged per transaction, including inquiries.

With its infrastructure in place, One Network Bank expects its clients to do more bills payments and remittances through ATMs.

It is, in fact, so confident of the remittance business that it is pursuing a tie-up with Cirrus, which would enable its clients to do international transactions with their ATM cards. Hand in hand with this, it is exploring the possibility of putting up banking kiosks in public markets, since this is where its market moves.

One Network Bank’s successful venture with technology coincides with its newfound status of being able to directly clear transactions with the Philippine Payments and Clearing System, a first for any rural bank. Because it no longer has to go through a commercial bank for clearing purposes, One Network Bank clients enjoy faster clearing times – a must for any bank client. For the bank, this means being able to unlock its maintaining balances with its holding banks, and being able to use these for more productive purposes in the countryside.

One Network Bank makes an effort to make its loan products "very friendly to small accounts." The minimum loan amount is P10,000, and rates are reasonable, ranging from 18% for those without compensating deposits, and market rates for those accounts with which the bank has developed a relationship. "This is a newfound strength," noted Buenaventura. "Previously Maragusan would have 5-8 merchants who would travel 20 kilometers to go to commercial banks, but now they are beginning to patronize us. There seems to be an increased level of confidence in us."

A new branch opened in Bukidnon

Buenaventura is proud to say that the bank’s clients are growing. "We just granted a P40 million loan to a banana cooperative with 167 members. I never imagined we will ever lend a million," he says. But apparently, as businesses grow, so will loan sizes. Recently, the bank approved a P12 million loan for St. Michael College in Nasipit and the Notre Dame School in Libak, Sultan Kudarat. It also extended a P19 million loan to the Kidapawan Doctors Hospital in North Cotabato. "This is rather new," Buenaventura points out.

It remains, of course, that One Network Bank’s average deposit and loan size is small. This is something that the bank is proud of and would want to maintain. Of the group’s consolidated loan portfolio of P2 billion in 2004, the average account size was P36,515, which is not too different from its 2001 average loan size of P36,531 per account. Average deposit size stood at P8,180 in 2004, a slight improvement from the average deposit size of P6,386 three years prior. Total deposits as of end 2004 stood at P2.34 billion. Net income was pegged at P174 million.

Given the size and the number of its accounts, Buenaventura realizes that the bank has to aggressively manage its accounts. Thus, it chooses to monitor its risk portfolio, and has tied its managers performance bonuses to their ability to keep this in check. The bank imposes a standard that each bank branch would have to meet for its officers to be able to collect their bonuses. "This is a management issue," Buenaventura believes, adding that "diligence" is key to managing problematic accounts.

Today, the bank’s PAR stands at 9.7%. Since the standard was set at 8%, this simply means that for 12 branches, bonuses will be withheld. "We’ve gone a long way from 18%," says the bank executive.

Certainly, the bank has accomplished much for rural Mindanao since the consolidation of its forerunners, but for Buenaventura, this is just the beginning. As Mindanao’s needs grow, so can it look forward to the steadfast commitment and financial support of One Network Bank to see it through.

Despite One Network Bank’s dalliances with technology, there is one thing that will forever remain close to its heart – what bank president Alex Buenaventura calls its "romance with agriculture."

At the Heart of Agri-Credit

One Network Bank has never had a question about what its core business is – agricultural lending. Even before the consolidation of its component banks, there was always an effort to improve lending to farmers.

Eager to help out rice farmers, the bank invested in a rice mill in Panabo in 1986, which would eventually lead to the establishment of the Corporative Systems Foundation. This was a corporation that was eventually converted to a cooperative. This was replicated through the DDS Agro Industrial Corporative Inc.

Through all this, the bank noted that farmers were always beset by crop failure and decreasing yield. Discouraged, most opted to plant other crops while others abandoned farming, a process which further depressed yield. No financing or marketing measures seemed to improve the situation.

This prompted the bank to look at the production side of rice farming. "We realized we neglected the production side," Buenaventura recalls, which prompted them to research on ways to improve rice production. Their efforts paid off, with the development of a no-failure, high-yielding rice production technology. The technology entailed disciplining farmers in a given area to do things at the same time as a way to control stem borer infestation.

According to Buenaventura, it was proven that if farmers in a given area sow seeds at the same time, and time this such that harvest occurs when there is no moon, the stem borer, the biggest enemy of rice farmers, could not propagate. Rice farmers who have done this, he says, have produced as much as 130-200 cavans per hectare.

Given this initial success, the bank is now working with farmers, expanding coverage with each harvest cycle.

As it develops its core business, One Network Bank is exploring ways to reach out to more farmers and work with them in ways that will be mutually beneficial.

Recently, it discovered the formula that could make agricultural lending truly effective for itself and its clients. This is by ensuring the combination of three elements: a sure market for the products, a risk-free production technology involved in production, and the presence of production standards.

It is, for instance, lending to a banana growers’ cooperative tied to Stanfilco, whose Cavendish bananas are covered by a 10-year production and purchase agreement (PPA). This PPA ensures the bank that its growers’ produce have a sure market, and that they would be paid in dollars.

" We provided P200,000 to P400,000 per hectare to the cooperative," related Buenaventura. "We never imagined we’ll lend this much to farmers. This is where our small account orientation comes. We would rather have many small farmers than big ones."

Utilizing the same formula, One Network Bank is also extending credit to palm oil growers who were also covered by a PPA, and who have discovered a technology to ensure successful production. Similarly, it is providing financing to sugar growers of the Cotabato Sugar Central Corporation.

Today, One Network Bank has a clearer view of its role in countryside development. "We need not put up processing factories, we just have to tie up with buyers and markets. Now that we have found this way, we will finance production that is globally competitive, that is risk free and with a sure buyer," said Buenaventura.

This, of course, means that even as it pursues other business directions, it will never stray away from its core business. "Agri credit is where our heart is, and One Network Bank will develop Mindanao through credit," he concluded.