Deal focus: Archipelago makes Philippines banking play

When Philippines-based BDO Unibank acquired One Network Bank in 2015, it hoped to enter a space where few peers had managed to tread. More than two thirds of the country's population lacked a bank account at the time, and most account holders were in urban areas where BDO had its highest penetration. This left a huge opportunity in rural provinces. 

Buying the country's largest network of rural banks was the first step in BDO's strategy for capturing the underbanked population, but the lender knew it wouldn't get the most out of the acquisition on its own. It needed a partner that could complement its financial resources and strategic ambitions with an understanding of the unique requirements of rural customers.

"BDO's network isn't very well-suited to rural areas, and it has very little experience in serving underbanked populations. But it has big ambitions to go into these areas," says Jovasky Pang, CEO of Archipelago Capital Partners, which recently acquired a 15% stake in ONB for an undisclosed amount. "This is something that Archipelago knows very well, which is why BDO looked to us as a partner."

In approaching Archipelago for a partnership last year – following a failed investment from TPG Growth – BDO was building on a relationship that had begun in 2017. The firm had helped ONB develop the framework for its MSME (micro, small, and medium-sized enterprise) lending business, which led to the establishment of a pilot program covering 20 locations. 

Both BDO and Pang were eager to continue their collaboration, drawing on his experience as the CEO of BOC Fullerton, which he built into the biggest village banking group in China from 2010-2014 by focusing on the country's poorest counties. Pang believes that this experience will help ONB to penetrate rural communities in the Philippines, which share similar characteristics to their Chinese counterparts.

"These are highly closed economies without much external trading, but there is activity there – it's very community-based, between people who know each other and in village fairs, wholesale, and so on," Pang says. "Once you have an entry into those kind of spaces, you can dominate for a long time."

Currently the biggest priority for ONB is geographic expansion. The bank was founded in Mindanao, and while it now has branches across the Philippines, 70% of its locations are still in the island. Archipelago hopes to reduce this figure to 40%, introduce more financial products, and identify acquisition targets. The biggest challenge is finding the right growth plan while the opportunity is still ripe.

"We're in a land grab for market share. The Philippines won't be 34% banked forever, and with the emerging middle class and the growth in technology there's a point coming when banking penetration will grow quickly," says Pang. "Right now, the most important thing is to get to the customers first."   

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• Topics
• Southeast Asia
• Financials
• Expansion
• Philippines
• Archipelago Capital Partners
• Financial Services
• Growth capital