ONB sale sets valuation standards

MANILA, Philippines -The acquisition by mega bank BDO Unibank Inc. (BDO) of the country’s largest rural bank has opened opportunities for further mergers and acquisitions (M&As) or consolidation of the Philippine rural banking system.

Last December, BDO bought One Network Bank (ONB), the largest rural bank with assets worth P28.1 billion, net loans of P19.7 billion, and deposits of P17.9 billion as of end Sept. 2014.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor A. Espenilla Jr. said that the ONB acquisition set a clear signal to rural banks about the importance of M&As and consolidation.

“The deal provides a reference point for how a rural bank can transact or work out an acquisition arrangement,” Espenilla said.

Over the years, rural banks have been fighting to remain competitive in the face of higher capital requirements, regulatory requirements in the face of global approaches to risk, domestic competition and the ongoing Asean economic integration.

But closure had been the predominant solution to dealing with competition or the inability of rural banks to comply with monetary regulations.

The BSP extended the Strengthening Program for Rural Banks (SPRB), a mechanism for M&As or consolidation, but there were little takers.

Espenilla said the problem often lies in the valuation process, where more often than not, the seller puts too much premium over the emotional value thus pricing unrealistically.

“Valuation is the most difficult challenge, plus the emotional value which sometimes given too much premium,” he explained.

The BDO-ONB deal offered players a more realistic formula to look at in pricing properly, where realistic business discussions can be held.

“The deal caught the attention of many rural banks, which have been sitting on the fence,” Espenilla added.

ONB president and chief executive officer Alex V. Buenaventura admitted being approached by several rural banks seeking guidance on the process of valuation, after the deal was consummated.

“They wanted to know how to entice larger banks to enter into a win-win acquisition arrangement,” Buenaventura said, while others sought guidance on consolidation processes. ONB is a product of a three-way consolidation.

According to BDO president and chief executive officer Nestor V. Tan, ONB will remain a rural bank for the meantime.

“It (the acquisition) is more to take advantage of economic growth in the provincial areas. They are relatively under-served,” Tan said.

It was further learned that BDO would retain majority if not the entire plantilla of ONB thus preserving job security and expertise.

Buenaventura will be retained as bank chief executive and may even be invited to seat at the BDO board representing the rural bank.

The acquisition increases the compe-titiveness of ONB and likewise, expands the reach of BDO, already the largest Philippine bank.

In fact, BDO may become the first Philippine bank to exceed 1,000 branches.

In end 2014, BDO operates 903 branches expanded with the acquisition of Real Bank and Citibank Savings.

ONB operates 105 full branches and micro-branches spread out in Mindanao and Panay, thus bringing the combined BDO network to 1,008.

Foreign financial institutions expanding in the Philippines seek domestic banks with reach and financial depth.

Majority prefers to forge strategic partnerships or equity share relations instead of establishing a full branch.

The Philippine market is still small in comparison to the rest of the Asia Pacific region. “Business arrangements make more sense than competing on the ground,” the two bank executives and regulator agreed.