[Ask TBM] Is It Worth Investing Money in a Rural Bank?

MVSM President Gigette Javier-de Luna shares her insights on how rural banks are beneficial to depositors, investors, and the economy as a whole. 

According to the data from the Rural Bankers Association of the Philippines (RBAP), the Philippine banking system showed a solid performance during the second quarter of 2024 and grew by 12%. While it may not be a surprise that digital banks grew by 35% during the time period, what came second are not universal and commercial banks. Instead, rural banks came second with a growth of 14%, which is higher than universal and commercial banks (12%) and thrift banks (11%). Given this, should you invest in a rural bank?

Many these days may not be familiar with rural banks. Believe it or not, there are a total of 333 standalone rural banks in the country, as of July 2024. Traditional rural banks actually have a total of 1,613 branches. 78% of these are regular branches. 

But what exactly is a rural bank? Is it worth investing capital or depositing money into one? The Business Manual asked MVSM Bank President Gigetter Javier-de Luna for insights to get a better understanding of what rural banks are and how they’re beneficial whether to a single client or to the Philippine economy as a whole. 

How would you explain what a rural bank is to someone who is unfamiliar with it?

A rural bank is a community bank. Its operations are very localized, and it caters to the greater population who want to avail of simple and basic financial services.

What are the misconceptions about rural banks that you want to correct?

Rural Banks are wrongfully seen as jurassic. Not relevant. While there are some rural banks that offer digital services, most still rely on physical banking. There is a market for that still. Cash is still king.

How do rural banks contribute to the economy?

Rural Banks provide a bigger physical branch network than its big brothers, the commercial banks. There are many sites where only rural banks service the area. Commercial banks don’t find it viable to have their presence there. 

Moreover, rural banks provide easier access to credit for individuals and SMEs. Less paperwork, less requirement, faster turnaround time. A sari-sari store vendor will probably not be given the same attention by a commercial bank as compared to a rural bank. 

Commercial banks are known to channel funds from all over the country and lend to big corporations and big high net worth individuals. For rural banks, money that is deposited in their localities are plowed back to the system through financing of loans in the same area. 

How can investing one’s money in a rural bank be beneficial or profitable? 

If investing as a stockholder, investing in rural banks is a good idea. Return on assets and return on equity is quite respectable as compared to other businesses. The risk and amount of dedication, though, could be more challenging than investing in, let’s say, a retail store.

As a depositor, rural banks offer competitive deposit interest rates also. It has time deposit placements and the five-year deposit product that commercial banks offer without documentary stamp taxes.

What concrete tips and advice can you give those who are considering investing their money in rural banks? What should they keep in mind prior to entering any transaction?

Visit the bank and get to know the manager. See how the bank looks like inside. Ask around and even go online to do a background check of the rural bank.

Gigette Javier-de Luna is the President of MVSM Bank.