Aborted DBP-LBP merger
FINANCE Secretary Carlos Dominguez III gave an early Christmas gift to thousands of officials and employees of Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) when he cancelled the proposed merger of the two government-owned banks.
It will be recalled that early this year, then President Aquino, upon the recommendation of the Governance Commission for Government-Owned and -Controlled Corporations (GCG), issued an executive order approving the consolidation of DBP and LBP, with the latter as the surviving bank.
The order stated 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 order was not self-executory because it required approvals from the Securities and Exchange Commission, Philippine Deposit Insurance Company, Bangko Sentral ng Pilipinas and Philippine Commission on Competition.
At that time, some sectors expressed doubts about the deal being completed before the end of the Aquino administration because of its complexity and limited time. The prediction proved to be true.
Barring any change of mind by Dominguez (or President Duterte), the marriage of DBP and LBP will not happen any time soon. Their employees have reason to be hopeful that their jobs, at least for the time being, are secure.
Recommendation
Since the two banks are government-owned or -controlled corporations (or GOCCs), the cancellation of their proposed merger will have to be done through a memorandum of GCG to the President recommending the repeal of Aquino’s executive order on the matter.
It is interesting to note that CGC, which has a new set of officers, is making a 180-degree turn from its earlier finding that the unification of DBP and LBP will be in the country’s best interests.
This time, CGC believes the two banks are better off operating separately and attending independently to the financial requirements of their respective clientele.
Its stance jibes with Dominguez’s observation that the two banks were created for different purposes and therefore it is not rational to put them together.
The similarity of position gives the impression that either Dominguez had earlier advised CGC of his position on this issue and CGC did not offer any objections, or CGC had prior consultations with him and agreed to take a common stand.
Incidentally, CGC is not an attached agency of the Department of Finance or under its administrative supervision. It is under the Office of the President of the Philippines.
From the looks of it, major financial decisions will henceforth be made in the finance department, not Malacañang.
Consolidation
The DBP-LBP merger was on the bucket list of former Finance Secretary Cesar Purisima. It was one of the things he talked about shortly after he was appointed by then President Aquino.
The proposed consolidation reflects Purisima’s professional upbringing as financial adviser to many of the country’s business conglomerates. He was for decades connected with SGV & Company, one of the country’s premier accounting firms.
His Big Business exposure accounts for his belief that size is might in the banking business and that by combining the assets and staff of DBP and LBP, the surviving bank will be in a better position to contribute to national growth and development.
Purisima cannot be faulted for taking this stance because the name of the game in financial institutions in our Asean neighbors has been continuing consolidation of resources so they can ably compete in the global financial market.
In addition, a unified DBP-LBP can have the features of state investment funds that some Asean countries have put up to meet the financial requirements of their infrastructure projects and, at the same time, invest in profitable foreign ventures that can bring additional funds to their country.
Development
Although actively engaged in business himself (and very successful at that), Dominguez is not cut from the same cloth as Purisima.
Dominguez is a “promdi”—or somebody who grew up in the provinces—who served as secretary of the Departments of Natural Resources and Agriculture during the Cory Aquino administration.
In these government posts, he interacted with farmers, loggers and other people whose livelihoods depended on the soil or the country’s natural resources.
Having also served as director of LBP, he knows the financial problems that farmers confront during planting and harvesting seasons. As a businessman, he is no stranger to the banking issues that his fellow businessmen have to contend with to keep their businesses running and in good shape.
Thus, it does not come as a surprise that Dominquez has expressed his opposition to the plan to strip DBP and LBP of their ability to attend to the financing requirements of the clientele to which they have been assigned by the laws that created them.
True, merging DBP and LBP will create a bigger bank that can compete toe to toe with its counterpart in the private banking sector in the country and provide additional financial muscle to its prospective clientele.
But where would that leave the farmers, entrepreneurs and small businessmen who look to LBP and DBP for financial support for their operational requirements?
The status quo is worth keeping and even strengthening.
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