DBP, LBP merger pushed

MANILA, Philippines — Two state-owned banks may soon be merged amid efforts to save money and streamline operations ahead of the integration of Southeast Asia’s financial system starting 2015.

Money saved as a result of the merger—through measures such as the closure of redundant branches—can be used to invest more to improve the consolidated bank’s operations. New branches may also be put up in areas still untouched by private lenders, helping bring formal banking services to a larger segment of the population.

The Governance Commission for Government-Owned and -Controlled Corporations (GOCCs) late last month proposed the merger for the Development Bank of the Philippines (LBP) and the Land Bank of the Philippines.

Proposals for the merger of the two banks comes amid the impending integration of Southeast Asia’s financial industry, which would open up the local market to the entry of more deep-pocketed foreign lenders. A merged Landbank-DBP is expected to create a stronger entity that can better compete locally.

In a statement published on Gov.ph, the national government’s website, the Governance Commission said the purposes of both banks “duplicate and unnecessarily overlap with one another.”

For instance, both banks’ official mandates say they provide financing to agricultural and industrial enterprises, among others. Both banks also lend for infrastructure projects and social services such as healthcare and education.

Both offer deposit products, electronic banking, and money transfer services, among other similarities.

“The consolidated entity will be more effective, efficient and sustainable in carrying out the mandates of both banks, particularly in anticipation of the wave of foreign banks that may enter the Philippine market upon the occurrence of Southeast Asian integration in 2015,” the statement read.

“The consolidated entity will have enhanced retail and wholesale banking operations relative to that of DBP and LBP as separate corporations,” it added.

Once merged, both banks’ combined branch networks would also give the surviving entity a wider reach.

Currently, DBP has 104 branches, while Landbank has about 337. This means a merged bank would have a total of 441 branches, which benefits its consumers.

“Redundant branches may be closed, which will result in savings that can be used to improve existing ones or open new branches in previously un-banked areas in the interest of inclusive growth,” the Governance Commission said.

Like the rest of the banking sector, profits for Landbank and DBP have been falling since the start of the year, largely as a result of volatile conditions in financial markets. Landbank saw its profits decline by 29 percent in the first half, while DBP’s bottom line shrank by 51 percent in the first three months of the year, latest data showed.