President Benigno Aquino 3rd has approved the merger of state-owned Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP), with the latter as the surviving entity.
Executive Order (EO) 198, signed February 4 and issued on Tuesday, noted overlapping functions and the need to “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.”
The merger still has to be approved by the Bangko Sentral ng Pilipinas (BSP) and Philippine Deposit Insurance Corp. Central bank Governor Amando Tetangco Jr. said a formal application had not yet been filed but noted that the merger would benefit the government and the banking system.
DBP’ assets and liabilities will be transferred to LBP, which will see its authorized capital stock raised to P200 billion by virtue of EO 198.
The Palace order also mandated the Finance and Budget departments to provide a capital infusion of at least P30 billion to LBP, “to be sourced from existing funds if allowed by law, or to be included in the General Appropriations Act for the succeeding years.”
“The GCG (Governance Commission for GOCCs, or government-owned and -controlled corporations) shall implement the merger, and in consultation with DBP and LBP, shall also determine and implement the extent and modes by which the assets and liabilities will be transferred,” the EO also states.
Tetangco, in a text message to reporters, said: “The BSP has yet to receive a formal application from the parties involved, which is the normal procedure for the standard merger of entities in the banking system.”
The government, among others, will have to submit the business case for the merger, the central bank chief said, even as he expressed support for the move.
“A merger of the two 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.
The Finance department, for its part, said the merger would promote banking sector stability.
“With better capital adequacy and robust resources, we can expect government banking to continue growing, especially in terms of efficiency and size of the public served,” Finance Secretary Cesar Purisima said.
DBP has the primary purpose of providing banking services for small and medium enterprises in the agricultural and industrial sector, particularly those operating in the countryside.
In the first half of 2015, its net income amounted to P2.35 billion, up 19 percent compared to the same period in 2014.
LBP’s purpose, meanwhile, is to finance the acquisition and distribution of agricultural estates for division and resale to small landholders as well as the purchase of landholdings by agricultural lessees. It is also the financial intermediary for the Comprehensive Agrarian Reform Program.
In the first nine months of last year, LandBank’s net income grew by 11 percent to P10.27 billion from a year earlier.