DOF's Diokno: Marcos OKs Landbank-DBP merger

President Ferdinand Marcos Jr. approved the proposed merger of state-run lenders Land Bank of the Philippines and Development Bank of the Philippines (DBP), with Landbank as the surviving entity that could become the largest bank in the country in terms of assets.

In a text message to reporters, Finance Secretary Benjamin Diokno said the President, approved the merger during their sectoral meeting on Tuesday morning.

“Merger of DBP and LBP approved,” said Diokno.

“Yes, approved by PBBM,” added the Finance chief.

During a Palace briefing, the Marcos administration’s chief economic manager said that “by merging the two it will now become the Number 1 bank in the Philippines aside from Banco De Oro (BDO) in terms of assets.”

Data from the Bangko Sentral ng Pilipinas as of September 30, 2022 showed BDO as the country’s top bank in terms of assets with P3.73 trillion.

It was followed by Landbank with assets worth P2.76 trillion. DBP, on the other hand, ranked eighth with P1.035 trillion worth of assets.

“Now, the President expressed the desire to merge the two, to make it the biggest bank of the country because of the recent financial developments abroad. And that’s really the best practice. The biggest bank is usually owned by the state, globally,” Diokno said.

Recently, the global financial system was rocked by developments concerning the fallout of Silicon Valley Bank and Credit Suisse.

The merger of Landbank and DBP, to recall, was approved by then-President Benigno Aquino III in 2016 but was abandoned by the Duterte administration due to concerns that transforming the two institutions into one would not serve the public interest because the banks were created for different purposes.

Landbank serves the agriculture sector while DBP takes care of the needs of industry.

Diokno, who was then the Budget secretary, signed the resolution abandoning the Landbank-DBP merger as an ex-officio member of the Governance Commission for GOCCs along with then Finance Secretary Carlos Dominguez III.

In pushing for the merger, the Finance chief said that “none of the services provided by either bank will be lost and we assured him (Marcos) that with the merger, because both the Land Bank and DBP are universal banks, they do almost the same, except that one is focused on agri and the other one industrial projects, but they do practically the same.”

Diokno added that the government will be able to save “a lot of money.”

“We estimate that the savings will be in the neighborhood, at least for the first year, P5 billion. For the projected operating cost savings due to the merger could reach at least P5.3 billion per year,” Diokno said.

“So for the next four years at least P20 billion, okay and this is even understated because this does not include revenues that can be derived from the sale of redundant assets of DBP, various properties such as its head office in Makati, a property in BGC, various branch properties, equipment and licenses and income that can be derived from the proceeds of such sales,” he said.

“Maybe the interest rate that they will be charged will be lower, either up to two at the moment. In terms of the number of branches right now... between the two of them, of course as you know the Landbank is the bigger bank, right, it has how many branches, Land Bank has 752 branches at the moment, and the DBP has 147 branches,” Diokno said.

The Finance chief said that as a result of the merger only 22 branches of DBP will be retained and that the plan is that Landbank will have a branch in all local government units in the Philippines; it could be a combination of light branches or big branches, ATMs, among others.

In his text message to reporters, Diokno listed the following advantages which will result from the merger of Landbank and DBP:

• The merger will create a bigger and stronger bank to better serve the country’s development needs,
• The combined branches of the two banks results in a wider network of its banking operations,
• The merger complements the strengths and addresses the weaknesses of the two banks,
• The improved financial position will provide a bigger headroom for loans that can be utilized for development projects,
• The merger will help avoid the need for DBP to recapitalize — from P30 billion to P100 billion — and seek capital infusion from the national government,
• The merged bank will be in the best position to serve as the sole authorized government depository bank for the entire Philippine government and its instrumentalities, and
• Having a single bank remains the best practice in the region and simplified procedures with counterparties.

However, Senator Sherwin Gatchalian expressed “very serious concerns” about the planned merger, saying this “supermonopoly” might be disadvantageous to the local government units (LGUs) and the agriculture sector.

“’Yang merger na yan will create a supermonopoly at lahat ng LGU ngayon isa na lang ang kausap—‘yang supermonopoly,” Gatchalian said.

“Dati nakakapili pa ang mga LGUs between Landbank and  DBP. Ngayon isa na lang at wala silang choice. So kung masama ang serbisyo ng supermonopoly, wala silang choice. Kung mataas ang interest rate sa kanilang loans, wala silang choice. So it’s bad for local government units,” he added.

Gatchalian explained that Landbank and DBP have "very different mandates," thus one of them would need to "sacrifice" its mandate if the merger goes through.

But even now, Gatchalian said that Landbank was not able to fulfill its mandate to help farmers. 

“In our hearing sa Maharlika [Investment Fund Bill], hindi nabibigay 'yung loan proceeds sa mga farmers, napakababa, at ‘yung kanilang mandate to help our farmers hindi nila nagagawa. Moreso, kung kinombine ‘yan…Mama-marginalize ang ating mga farmers and agriculture sector because hindi na sila matututukan. Mas maganda may specialized bank looking after the interest of our agriculture sector,” he said.  

GMA News Online asked Diokno for comment regarding Gatchalian's statements, but he has yet to respond as of posting time.  — with Hana Bordey/DVM/VBL, GMA Integrated News