DBP-Landbank merger’s fate

DBP-Landbank merger’s fate

/ 04:35 AM February 05, 2024

It’s been nearly a year since President Marcos purportedly agreed to the proposed merger of Land Bank of the Philippines and Development Bank of the Philippines (DBP), putting thousands of employees and officers of the two state lenders on edge as they nervously await their fate. The President should now make known his position on the proposed union to ease these fears.

A report in this paper’s Bizz Buzz said the President had signified to DBP leadership that he was now in favor of keeping DBP and Landbank as distinct entities, a turnaround from what former finance secretary Benjamin Diokno had announced in March last year. According to Diokno at that time, the President approved the merger during a sectoral meeting in Malacañang and that the merger could happen before the end of 2023.

Diokno advanced 10 arguments in favor of the merger of the two state-run banks, foremost of which was that the merger would create a bigger and stronger bank to better serve the country’s development needs. It is worth noting, however, that the US-induced global financial crisis of 2007-2008 has led some policymakers in Washington to argue that limits on bank size were a way to reduce financial instability and excessive risk-taking, prompting regulatory proposals that include caps on bank size as well as incentives for banks to remain small.


Best practice

Another argument cited by Diokno was that the projected operating cost savings from the merger could reach at least P5.3 billion a year, or more than P20 billion over the next four years. However, he did not say at what cost. Such savings ostensibly will result in part from laying off thousands of government employees in the state banks. Under the merger proposal, 75 percent of DBP’s 3,600 employees would be deemed redundant.


Diokno presented other points that may only be partly true, such as the claim that having a single bank remains the best practice in the region. Thailand has the Bank for Agriculture and Agricultural Cooperatives for farmers and the SME Development Bank of Thailand for small entrepreneurs; Malaysia has Agrobank and Bank Perusahaan Kecil and Sederhana Berhad or SME Bank. Indonesia also has four state-owned banks, while the Singapore government has ownership interests in several banks largely held through its sovereign wealth fund.

Unintended monopoly

The affected banks, however, presented valid points that the President cannot simply dismiss. In a March 22, 2023, position paper submitted to Executive Secretary Lucas Bersamin refuting point by point the justifications laid out by Diokno, DBP president Michael de Jesus and chair Dante Tinga warned of an “unintended monopoly” and concentration of risks arising from the merger. “We think it’s best for the country that both operate separately from each other. The merger is not good. You’re putting all your eggs in one basket,’’ De Jesus said, adding “In the future, in case of mismanagement or corruption, you only have one bank as opposed to having two.”

Due to separate single borrower’s limit (SBL), or the limit on total credit commitment to a single industry, DBP also argued in its position paper that both banks complete each other by serving enterprises belonging to common industries simultaneously by having separate industry limits, thus bigger loans to those sectors. On the other hand, a merged entity that may enjoy the benefits of huge capital would still be subjected to SBL and other industry limits. In the absence of a mechanism integrating best practices of the two banks, DBP added that the proposed merger would just be “a consolidation of assets.”

More prudent decision

In 2016, when Mr. Marcos was running for vice president, he had opposed the proposed merger, arguing that it would deprive farmers of a means to get financial support because they would lose a bank mandated to serve their needs. The President may not have actually changed his position on the issue. Contrary to Diokno’s claim about Mr. Marcos’ approval, some of the officials present in the March 28 meeting last year said he stressed the need to conduct a thorough and meticulous legal study on the proposed merger.

With the appointment of former senator Ralph Recto as finance secretary replacing Diokno, the merger’s staunch advocate, a final and more prudent decision on the proposed merger should be made now. While the merger was supposed to provide “better ways of doing things” as Diokno envisioned, a forced marriage between Landbank and DBP may not be the best answer now, considering its impact on thousands of workers and the disruption to agriculture and SME lending that may be caused during their transition to a merger.

Besides, bigger does not necessarily mean better, and DBP and Landbank need only to be guided separately into improving their performance insofar as extending loans to farmers and fishermen and to small and medium entrepreneurs is concerned.

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TAGS: Banking, DBP, opinion

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