Iffy DBP-LBP merger | Inquirer Business
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Iffy DBP-LBP merger

/ 12:08 AM February 22, 2016

LESS than four months before President Aquino bows out of office, he issued Executive Order No. 198 approving the merger of Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP).

EO 198 implements the recommendation of the Governance Commission for Government-Owned and -Controlled Corporations (GCG) that the fusion will be good for the country because the banks’ functions duplicate and overlap with one another, and that their combination will build a stronger and more competitive universal bank.


The proposed merger will be reviewed by the Securities and Exchange Commission (SEC), Philippine Deposit Insurance Corp. (PDIC), Bangko Sentral ng Pilipinas (BSP) and Philippine Commission on Competition (PCC).

The transaction can pass muster with the SEC upon the submission by the banks of, among others, their Articles of Merger, proof that their stockholders have approved the action, and their creditors have been notified of the proposed consolidation.


Getting PDIC’s approval will not be difficult considering that DBP and LBP have been scrupulous with their insurance obligations. The same thing can be said for the BSP because the merger fits into its program to encourage banks to coalesce to improve their financial standing and make them more competitive in the regional market.


The new kid in the regulatory block, PCC, is a question mark. Since it was organized only recently, the views of its members on mega business mergers are still unknown.

Although PCC commissioners owe their appointment to President Aquino, there is no assurance they will give him a pass on this deal as a show of gratitude.

While they may be agreeable to the deal, they may impose certain conditions that will ensure, for example, that private universal banks are not put in a disadvantage in trading government securities or funding transactions between private parties and government offices.

Given the magnitude of the proposed merger in terms of, among others, valuation of assets, synchronization of services and restructuring, it is doubtful if the deal can be completed before the Aquino administration exits on June 30.

DBP and LBP are not ordinary banks. They are the two largest government-owned financial institutions that have between them 441 branches all over the country.


Although organized to support specific government economic programs, their business strategies and infrastructure to accomplish their mission statements are not the same.


The broad strokes of the merger may be easy to agree on, but the nitty-gritty on how to make it work so it can meet its objectives is a different story. As the saying goes, the devil is in the details.

It is reasonable to expect their respective top brass to strongly negotiate to protect the interests (read: security of tenure and benefits) of their managers and employees.

In addition, this is an election year and it is not far-fetched for the bank staff who may be adversely affected or lose their jobs as a result of the consolidation to call on their political patrons for help to maintain their employment. Favors can be granted in exchange for critical votes.

Unless the banks agree to let a third party resolve the contentious issues and accept its recommendations, the discussions could take time.

Thus, it’s doubtful if all the regulatory requirements can be met and the essential terms and conditions of the consolidation ironed out before a new president is elected and sworn into office.

Until LBP is formally installed as the surviving bank before inauguration day, the incoming president can, if he or she has a different mind on the merger, issue an executive order rescinding the transaction or holding it in abeyance for further study.


There is another issue that may derail the proposed “marriage” of DBP and LBP—the legality of EO 198.

EO 198 is premised on the GOCC Governance Act (Republic Act No. 1014) provision stating that “Upon determination by the GCG that it is to the best interest of the State that a GOCC should be reorganized, merged, streamlined, abolished or privatized, it shall (i) Implement the reorganization, merger or streamlining of the GOCC, unless otherwise directed by the President.”

Note that DBP was created by Republic Act No. 85, as amended, and LBP by Republic Act 3844, as amended. These special laws were enacted by Congress to meet the objectives spelled out in their respective provisions.

It is basic that a law can only be repealed or amended by another law, not by an executive order or presidential issuance unless that authority is provided for in the law itself.

By ordering the dissolution of DBP and the transfer of its functions to LBP, EO 198, in effect, performed two legislative acts: It repealed the law that created DBP and amended LBP’s charter by expanding its area of operations.

In May 2015, the House of Representatives approved on third and final reading House Bill No. 5755 which merges DBP and LBP, with the latter as the surviving bank, for essentially the same reasons cited by GCG.

In other words, the congressmen believe legislative action is required to effect the merger. However, EO 198 beat them to the punch.

It has been argued that the GOCC Governance Act, which grants the president the authority to merge or dissolve government-owned or -controlled corporations, impliedly repealed the laws that gave rise to DBP and LBP.

The problem is, the Supreme Court, in a number of cases, has ruled that implied repeals are frowned upon unless it can be shown that the inconsistency between the old and new laws is clear and the intention to repeal is evident in the later law.

DBP and LBP employees cannot be faulted if they question the validity of EO 198. Their livelihood is at stake.

For comments, please send your email to “[email protected]

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TAGS: Business, Development Bank of the Philippines, economy, Executive Order No. 198, Land Bank of the Philippines, News
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