Landbank-DBP merger?

IT IS PROVIDENTIAL that President Aquino did not sign the proposed Executive Order that would merge the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) and make LBP the surviving entity.

The time has come that our executive and legislative officials and the monetary authorities revisit and re-assess the role and function of government banks. Reviewing the charter of LBP and DBP, they have well-defined roles and functions, principally and primarily to serve as the financial and investment repository, agent, advisor and intermediary of the national government and its instrumentalities, and to support the government’s financial and investment needs and requirements that private financial institutions may not be willing to do.

For example, the very reason why LBP was established was to support the land and agrarian reform program of the government. But since the agrarian reform program has expired and the land reform program has not been satisfactory, the role and function of LBP has been substantially reduced. Likewise, the charter of DBP has always been to serve as the developmental and commercial banking arm of government and its agencies.

Strategic context

The issue of LBP-DBP merger should not be framed in the strategic context of attaining size and scale in order to be competitive in the local and regional markets. Instead, the role of a Government Financial Institution (GFI) should be viewed with the intent of how best to carry out the cornerstone of the administration’s economic and social programs, inclusive and sustainable growth.

The GFIs should not compete with the private banks and institutions in the field of commercial banking, investment banking, corporate banking, private banking, remittance market, branch network expansion, etc. GFIs should create a level playing field between and among the private banks, thus, should not compete head-on with them.

The performance of a GFI should not be evaluated on the conventional approach of ROI (Return On Investment), but should be rated on the basis of how much the GFI has supported the financial needs of government and its instrumentalities.

Financial requirements

The financial requirements of government for socio-economic development are enormous. In this regard, I propose that instead of an LBP-DBP merger, the government should:

1. Privatize LBP: The CARP has ended and the land reform program has not been satisfactory. LBP is easy to sell and can certainly command a good price. As of Dec. 31, 2014, its total assets amounted to P1.051 trillion; equity, P75.2 billion, and net income, P12.1 billion. As of June 30, 2015, it has 352 branches and 1,404 ATMs all over the country.

A smaller universal coconut bank, which has been scheduled for bidding, with a less than desirable portfolio and less than desirable reach and network, is attracting a good number of investors.

LBP operated as a universal bank when it was created in 1963 under RA 3844 (Agricultural Land Reform Code.)

Its purpose was to finance the acquisition and distribution of agricultural estates for division and resale to small landholders.

There is no true land reform in the country today. Thus, LBP did not or could not live up to the purpose for which it was established.

Once LBP is privatized, its sale proceeds can help strengthen the government’s fiscal position, and finance its socio-economic development programs.

As important, there won’t be two government banks competing for the same deposits, the same loans to an LGU or a government agency, the same market, the same area, and the same products and services.

True development

2. Keep DBP as “the” GFI: As a GFI, DBP has the history and culture of a true development bank. It started in 1935 or 80 years ago under the Commonwealth as the National Loan and Investment Board (NLIB) became Agricultural and Industrial Bank (AIB) in 1939, and Rehabilitation and Finance Corp. (RFC) in 1947 for the post-war reconstruction and development of agriculture, commerce and industry, and properties. RFC was reorganized in 1958 into what is now DBP.

With recapitalization partly from the proceeds of the sale of LBP, once privatized, DBP should continue to be the government’s policy bank. DBP plays a catalyst role in the development of sectors that are critical for inclusive growth such as infrastructure projects; tourism-oriented businesses; LGU financial assistance; micro and SMEs in the rural areas, but to which private capital is risk-averse.

It has been proven that one reason why our Asian neighbors have progressed faster is the development of policy banks that their governments mandate to finance critical sectors in line with their development agenda.

These include the Japan Development Bank, Korea Development Bank, China Development Bank, and sector-specific development banks in Malaysia, India, Thailand and Indonesia.

Why can’t we do the same?

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the Co-Vice Chair of the M.A.P. Membership Committee, a retired banker, and the Chair of Amber Properties Inc. Feedback at <[email protected]> and < [email protected]>. For previous articles, please visit <map.org.ph>)