Landbank-DBP merger to strengthen resilience of PH financial sector, DOF says

The government has proposed a merger between the Landbank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) to create a bigger, stronger, and more resilient bank that can better serve the country’s development needs.

“By merging the two, it will now become the number one bank in the Philippines,” Finance Secretary Benjamin Diokno said during a press briefing with the Malacañang Press Corps (MPC) on March 28, 2023.

The consolidated bank will establish its position as the largest bank in the Philippines with an estimated asset size of about PHP4.18 trillion and a deposit base amounting to PHP3.59 trillion.

After the merger, the LBP will be the surviving entity given its higher authorized capital stock of PHP 800 billion and stronger financial position.

The consolidated books will allow the merged entity to better withstand economic shocks. The merger will also enhance retail and wholesale banking operations than when functioning as separate banks.

“The President expressed the desire to merge the two to make the biggest bank in the country because of the recent financial developments abroad. That’s really the best practice. The biggest bank is usually owned by the State,” Secretary Diokno said.

To date, the LBP has a total of 752 branches, while the DBP has 147 branches. The combined branches of both banks will result in a wider network for banking operations. However, only 22 branches of the DBP will be retained as a result of the merger.

Secretary Diokno reasoned that the merger will eliminate redundancy and inefficiency in operations, resulting in savings.

He also assured the public that the services provided by both banks will continue post-merger. Furthermore, fair separation benefits will be offered for those who will be affected by the merger.

The government plans to have the merger effective before the end of the year.

In statement, DBP said “there is no formal decision on the merger with LBP.

DBP said believes that any merger would require an act of Congress as both institutions were created by enabling laws.

“DBP echoes and shares the sentiments of President Ferdinand Marcos Jr. on the need to conduct a thorough and meticulous legal study on the proposed merger of DBP and LBP which he firmly declared during a meeting with all stakeholders in Malacañang on March 28, 2023.”

DBP said it is committed to fulfilling its mandate of being a catalyst for national development by serving the financing needs of strategic and critical economic  sectors, particularly infrastructure and logistics, micro, small and medium enterprises, social services, and the environment.

“We assure the general public that the entire Board of Directors, Management Team and the rest of the public servants of DBP remain steadfast in serving the banking needs of our clients. And we shall continue to do so with the same passion, dedication, and commitment as we have done for the past 76 years.”

Senator Risa Hontiveros said the “government should proceed cautiously and prudently with respect to the contemplated merger of Landbank and DBP which, if implemented, would create the largest bank in the Philippines; perhaps resulting in a financial entity ‘too big to fail’.”

“One painful lesson from the 2008 Global Financial Crisis is that large banks are riskier, and tend to introduce more systemic risk into the financial system. The Landbank and DBP carry out separate, and distinct, mandates: the DBP serves industry by financing infrastructure, logistics, and commerce. The Landbank, on the other hand, has been the primary institution mandated by the State to finance the acquisition of land estates, and assist small farmers, fisherfolk, and ARBs, among others,” Hontiveros added.

The lady senator said they have to “understand exactly where the redundancies are and what efficiencies can be gained from this merger, and balance these against any risks that the merger may pose to the economy and financial system.”

She said the issue of redundancy is the reason why then then-DBM Secretary Ben Diokno, together with DoF Secretary Dominguez, opposed  the merger in 2016.

“What has changed since then? The Governance Commission for Government-owned and -controlled corporations itself, the regulatory body established for the purpose of monitoring and exercising oversight over GOCCs such as the Landbank and DBP, has previously expressed doubts that the contemplated merger would produce a beneficial synergy.”

Hontiverso said the two institutions have very different mandates and very different client bases.

Bakit ipagsasama ang dalawang banko na magkaiba ang misyon at layon? The DBP, because of the nature of its mandate, has also been historically embroiled in controversies involving behest loans and other transactions tainted by undue influence and conflict-of-interest; isa na dito ang sinuri nating mga pasilidad na ipinatayo ng gubyerno para sa 2019 Southeast Asian Games. Do we want to risk these same issues affecting Landbank?”

There is also a need for a bank that remains focused on agriculture “because this is the sector that does not really interest private commercial banks.”

“The merger may result in funds being diverted to the more bankable commercial and industrial sectors already adequately served by the private sector. At the end of the day, what is this merger truly for? Bakit gagawin ito? Sino ba ang makikinabang dito? Certainly not the employees, whose jobs are suddenly at risk. I stand by the workers of the Landbank and the DBP who report that they have not been properly consulted about the merger. According to them, the personnel and operational issues from the Landbank and UCPB merger remain unresolved, and if this is true, these should be settled first before proceeding with this new merger.”

Hontiveros said she will file a resolution to urge the Senate to safeguard the stability of the financial sector by exercising oversight over the proposed merger.