The Philippine government announced plans to combine the country’s two largest state-owned banks at the same time as it injected at least P30 billion ($629 million) of new capital into the merged entity.
Development Bank of the Philippines (DBP) will be merged into Land Bank of the Philippines (LandBank) to create the country’s second-biggest lender by assets, eclipsing Metropolitan Bank of the Philippines and Bank of the Philippine Islands, based on central bank data as of end-September. The merger needs the approval of Bangko Sentral ng Pilipinas (BSP).
“The merger bodes well for the stability of our banking system,” Finance Secretary Cesar V. Purisima said in a mobile-phone message. “With better capital adequacy and robust resources, we can expect government banking to continue growing, especially in terms of efficiency and size of the public served.”
The Philippines’s biggest banks must boost capital by at least four times current levels by 2019 to protect against growing risks and competition from foreign lenders, according to the central bank.
LandBank’s authorized capital will climb eightfold to P200 billion according to an order from President Aquino approving the merger with DBP.
While LandBank’s 361 branches mainly service farmers, and DBP was set up to cater for small enterprises, the functions of the two banks overlap, according to the text of the presidential order.
LandBank had profits of P10.27 billion in the first nine months of last year; DBP reported profit of P2.35 billion in the first half of 2015.
The consolidation of the two government-owned banks may spur further mergers in the Philippine banking sector, said Lexter Azurin, research head at Unicapital Securities Inc. in Manila. “We will see more in the coming months because Philippine banks need to scale up,” Azurin said.
In Malacañang, President Aquino finally approved the merger of LandBank and DBP after some delay in the plan due to his reported opposition to the laying off of government workers as a result of the merger.
Mr. Aquino signed Executive Order (EO) 198, dated February 4, 2016, but published only on Tuesday to effect the merger, with LandBank as the surviving entity.
He cited the policy of promoting efficiency in the government and building a stronger and more competitive universal bank that can cater to the financing requirement of the countryside, as well.
The EO is hoped to “build a stronger and more competitive universal development bank able to fulfill its mandate of providing banking services to propel countryside development and to contribute to sustainable and inclusive growth.”
The proposed merger had been in the works for several months, but President Aquino opposed it on the ground that many government workers will be laid off as a result.
Even the Governance Commission on Government-owned and -controlled corporations (GCG) was earlier convinced the merger would not happen, prompting fiscal planners to propose instead the abolition of some quasibanking units of LandBank and DBP offering services the private sector already performs.
Malacañang officials said the merger would bring increased efficiency in the performance of the respective mandates of the government banks.
The planned merger is also in keeping with the policy of promoting financial viability among government-owned and -controlled corporations as indicated in Republic Act 10149 that created the GCG.
It was pointed out in a briefer that DBP were to provide “banking services principally to cater to the medium and long-term needs of agricultural and industrial enterprises, with emphasis on small- and medium-scale industries to develop the countryside.”
LandBank’s mandate, on the other hand, is “to provide banking service with a special mission of spurring countryside development by granting loans to agricultural, industrial, home-building or home-financing projects and other productive enterprises, farmer cooperatives/associations to facilitate production, marketing of crops and acquisition of essential commodities, and to cross-subsidize agrarian land transfers.”
The briefer said some branches may be closed due to redundancy in terms of geographical location, but the savings gained from such closures may also be used to open new branches in so-called unbanked areas.
The number of branches of LandBank and DBP are as follows: in National Capital Region, 23 branches for DBP and 80 for LandBank; in Luzon, 34 branches for DBP and 136 for LandBank; in the Visayas, 21 branches for DBP and 53 for LandBank; in Mindanao, 26 branches for DBP and 68 for LandBank.
Government employees who would be laid off as a result of the merger will receive a merger incentive pay, aside from separation pay or retirement benefits.
The merger is subject to the written consent of the Philippine Deposit Insurance Corp. and the BSP.
Under the order, the authorized capital stock of LandBank will be increased to P200 billion from the current P25 billion, and the Department of Budget and Management will infuse a fresh P30-billion capital to LandBank.
(Bloomberg News with David Cagahastian)
1 comment
this is a welcome development. much delayed, but better than never.