PRESIDENT Aquino has given his go-ahead to merge two state-run banks, with the surviving entity becoming the country’s second biggest bank in terms of assets and a challenge to local tycoons’ dominance in the financial sector.
Land Bank of the Philippines (LBP) will be the surviving entity when it merges with Development Bank of the Philippines (DBP), pending Bangko Sentral ng Pilipinas (BSP) approval as well as written consent of the state-run Philippine Deposit Insurance Corp.
The merger will result in a bank with combined assets of about P1.6 trillion, just behind Henry Sy-owned BDO Unibank Inc.’s P1.88 trillion and surpassing George Ty-led Metropolitan Bank and Trust Co.’s P1.37 trillion, based on end-September 2015 BSP data.
Ayala-led Bank of the Philippine Islands had P1.16 trillion in assets as of end-September last year while Lucio Tan’s Philippine National Bank had P607.4 billion.
LBP is the country’s fourth-largest bank in terms of assets with P1.14 trillion, while DBP has P465 billion and ranked seventh.
BSP Governor Amando M. Tetangco Jr. said the merger of LBP and DBP “is actually in line with the BSP’s advocacy for bigger and better banks, and would potentially allow the national government to benefit from economies of scale in the banks’ operations.”
Tetangco said in a text message to reporters that the BSP would await the formal application from the parties involved, which should include the national government’s plans as well as the business case for the merger.
Executive Order (EO) No. 198 issued on Feb. 4 and published on Tuesday noted that the Governance Commission for GOCCs (GCG) earlier determined that “it is in the best interest of the State to merge DBP and LBP,” noting the two banks’ overlapping functions.
The EO said the merger “will 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.”
DBP’s assets and liabilities will be transferred to LBP under the operational merger. In a text message to reporters, BSP Deputy Governor Nestor A. Espenilla Jr. said the parties involved would have to file a merger application with the policy-making Monetary Board of the BSP. “A law or EO is just their legal basis to merge being government banks. Like all banks, they still have to get Monetary Board approval,” he explained.
“No request for merger has so far been submitted to the BSP. We’ll wait for their application,” Espenilla said.
Following the recommendation of the Department of Finance, LBP’s authorized capital stock will be increased to P200 billion from P25 billion at present. This significant increase would make the merged entity the biggest in the country in terms of capital, the GCG said in a report submitted to Malacañang last year.
In Southeast Asia, the merger would make LBP one of the region’s top 20 lenders, according to the GCG.
The EO also directed the DOF as well as the Department of Budget and Management to infuse P30 billion in capital to LBP.
The GCG will implement the merger, including undertaking a reorganization plan under which personnel of the two banks who will be separated from service will receive a merger incentive pay on top of separation or retirement benefits. About 220 Landbank employees will become redundant while 170 DBP workers would lose their jobs, the GCG had said.