City Savings Bank Chairman Eugene S. Acevedo talked about the role of countryside banks and technology in building competitive “BIZDak” small and medium-sized enterprises (SMEs) at the 25th Visayas Area Business Conference (VABC) last September 16 at Sabin Resort, Ormoc City. Here are key takeways from his talk:
On expensive bank loan rates
Operations expense (OPEX) inefficiency is the reason why rates are high. In microfinance, for example, the loan rate is 60% but OPEX goes as high as 50% of the loan. There is a need for SME banks to re- engineer and to go digital.
On causes of bad loans
First is wrong credit decision by the banks. Bankers must have a realistic view of
what the actual cash flows of the SME are. “You never lend to an SME based on their financials alone. A better way is to look at the whole ecosystem to validate their good standing and product reliability,” said Acevedo. Second is mismanagement and high living among some SME owners. Third is natural disasters, which is the biggest cause of systemic defaults among SMEs. An efficient insurance or risk transfer should be present to enable businesses to continue even after they get struck by typhoons.
On weak competitive position
SMEs are often sandwiched between big suppliers and buyers, leaving them little leverage. SMEs can group together and be in a stronger negotiating position in the supply chain.
On the need for technology and creating magic moments
The thrift bank arm of UnionBank has been leveraging on digital innovations to make the financing experience of teacher- clients easy and convenient. One of which is the Loans Hub (LH+), which uses algorithm to assess a loan application. Technology is about reducing cost and creating a delightful experience for our customers. That’s why at CitySavings, we don’t just say digitization; we say ‘magic moments’. If we’re unable to create ‘magic moments’ for our customers, we would have failed.
VABC is the biggest gathering of entrepreneurs, business managers, professionals, members of the academe and government executives in the Visayas. This annual event is organized by the Philippine Chamber of Commerce and Industry (PCCI).