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A Bank Where Social Responsibility is at the Core of its Existence

Article - January 21, 2013
The Philippines Veterans Bank was established by veterans of World War II and has been experiencing phenomenal growth over recent years, in tandem with the country’s economy
RICARDO A. BALBIDO, CEO AND PRESIDENT OF PVB
The Philippine Veterans Bank (PVB) was first conceived in 1956, after a reparations agreement, as part of a peace treaty, had been signed with Japan. A portion of the money provided by Japan, which invaded the archipelago in 1941 during World War II, was put into a trust fund for veterans of the war.

This fund was eventually used in 1963 by the Veterans Federation of the Philippines to establish the PVB. The bank was born out of a deep sense of social responsibility towards the Philippine’s WWII veterans, as a symbol of gratitude and reverence. Its vision: to ensure, through its growth and profits, that veterans were provided with adequate care and a good quality of life, through healthcare, pensions and other provisions.

But as CEO and President of PVB, Ricardo A. Balbido, points out: “The bank is not here just to service the welfare of the WWII veterans, but also their widows, their orphans and their heirs.”

Twenty percent of PVB’s profits are set aside for the bank’s Board of Trustees. The board in turn invests this money in projects aimed to benefit veterans. “The bank’s mission is to be profitable so that we can continually support our shareholders, the veterans” One of the main benefactors of this fund has been the Veteran's Out-Patient Center, which is equipped with modern medical facilities, and offers x-rays, laboratory services, physical therapy, eyeglasses and dental care to veterans and their families.

In recent years, the bank has been growing from strength-to-strength, in tandem with the country’s economy. Between 2001 and 2011, it managed to increase the value of its assets from PHP 14bn (USD 345mn) to PHP 57bn (USD 1.4bn).

It is a successful, yet small bank. That is why in recent years, it has shifted its focus from corporate lending and supporting big national projects to local government unit lending (LGU) to support local development projects. Now, 30 percent of its loan portfolio is comprised of LGU loans.

“Outside of the two government-owned commercial banks, nobody is really looking at the needs of local government. PVB positions itself as a viable alternative bank to these two – rendering efficient service and competitive products that are adaptable and receptive to their development needs,” Mr. Balbido states.

It is in this market niche that the bank found a place where it could support the development of the Philippine economy, which grew by 7.1 percent in the third quarter (Q3) of 2012 (following growth of 5.9 and 6.1 percent in Q1 and Q2 respectively). Its lending to LGUs has helped to evolve infrastructure projects, transport terminals and other developments.

There are two unique characteristics of the bank that distinguish it from other commercial banks in the country. First is the fact that it can accept government deposits, a privilege that was bestowed upon it as a means of gratitude for the heroism and sacrifice of the WWII veterans. Through this, the bank built a strong relationship with governmental agencies. “Since we can accept government deposits, a good number of government agencies and LGUs have supported us,” adds the PVB President and CEO.

The second unique trait of the bank is that it is owned, and can only ever be owned, by the veterans, their widows or descendents. Therefore it is, essentially, a “closed-end equity bank.” This presents challenges when it comes to raising capital: “It is not that easy. Most of the capital that we raise is just coming from our internally generated income. The calling is for the bank to be very profitable so that capital would continually grow.”

So as all eyes turn to Asia, what does the bank’s president have to say to investors who are looking at the Philippines? (A country that is currently outpacing most of its neighbours in terms of GDP growth)

“[Our] competitive advantage is the fact that we have gone into strengthening the economic fundamentals that are the foundations for growth,” he replies. The country has set historically-low interest rates – currently at around 3.5 percent – in order to entice demand for credit, which will “start turning the mill of the economy.”

Interest rates and Government deficits have been kept low also. However the deficit is expected to increase as the government begins to spend more, something that is essential, Mr Balbido says, to “stimulate consumption, one of the ingredients of economic growth.”

Other initiatives undertaken to get the millwheel moving are Private Public Partnerships (PPP) to improve infrastructure.

Mr. Balbido adds: “We need some sort of ice breaker because investors really can’t see anything concrete yet. If infrastructure projects are seen to be awarded and implemented, then the next wave of investments will come. Then the Philippines can optimistically expect growth of between 7% and 8% over two to three years. Given the economic fundamentals that we are standing on now, we do not see any reason why any of our expectations would not come to reality.”

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