Text by July Rada
Illustration by Tone Dañas
Three presidents of the Philippine republic have come and gone and still, the supposed “mega-merger” of state banks remains in some kind of suspended animation.
The merger plan involving the Land Bank of the Philippines and the Development Bank of the Philippines dates back to the Arroyo administration.
Proponents of the merger are harping on the benefits that it will bring, such as annual savings of around P975 million and the creation of a “super bank” whose assets will exceed P4 trillion, pole-vaulting itself to the top of the trillionaire's list.
WINNING SHOT
Now here comes Finance Secretary Benjamin Diokno trying to score a “podium finish” in banking history. He is aiming at a winning buzzer-beater of a “three-point-shot” if it were a basketball game.
By being able to clinch the “mega- merger” deal, Diokno will have done better than all his predecessors combined.
First to float the idea in 2005, Margarito Teves was then hard-pressed for revenue to paper over a gaping budget deficit besetting the Arroyo administration.
Then, it was the turn of President Aquino's Finance chief Cesar Purisima who in 2015 managed to gain a presidential approval for the LandBank- DBP union through an executive order, which was never implemented. When President Duterte took over in 2016, he scrapped Aquino's EO on the merger, in one of his first official acts. His Finance Secretary Carlos G. Dominguez had no objections.
HEY, NOT SO FAST
Renewed efforts to stoke up the merger have found a staunch proponent in Diokno, who has made a bold prognosis that the Land Bank-DBP merger will forge ahead by November. But DBP chairman Dante Tinga restrains Diokno from railroading the merger plan: “Hey, not so fast.” At the DBP headquarters in Makati on May 2, Tinga raised legal issues that must be resolved before the merger could proceed.
A retired SC justice, Tinga warned of legal action that the DBP employees might bring into the High Tribunal should the merger get carried out by way of a presidential fiat and not by an enabling law enacted by Congress.
COST-BENEFIT ANALYSIS
In a press statement, Diokno says the proposed LBP-DBP union is consistent with the principle of sound fiscal management. “Contrary to the claim that the merger is a 'dangerous experiment,' the proposal is the result of a careful analysis of the costs and benefits of this merger, based on solid financial and economic evidence,” Diokno said. Under the Diokno plan, LandBank shall be the surviving entity with its much higher authorized capital stock of P800 billion, compared to DBP's P35 billion, and overall stronger financial position.
Diokno says that with DBP nearing its authorized capital stock, which is currently at P32 billion, the merger will help avoid the need for DBP to recapitalize and seek capital infusion from the national government. On the retrenchments resulting from the merger, Diokno vows to work closely with the two banks to ensure that personnel decisions are consistent with the objective to enhance the bank's efficiency and effectiveness.” It is important that those who will be separated receive a fair package of benefits in recognition of their valuable service to the government,” Diokno promises. “Having a single government bank is the best practice in the region and streamlines procedures with counterpart banks and both regional and multilateral development banks. This is not the first of its kind,” Diokno justifies his position.
'LEGALLY ERRONEOUS'
As the DBP chairman, Tiñga in a position paper countered that the study recommending the merger is “legally erroneous” and done with inordinate haste and encroaches on the mandate of the Office of the Solicitor General (OSG) and the Office of the Government Corporate Counsel (OGCC). The study, conducted by the Governance Commission for GOCCs (GCG) in less than three weeks, concluded that President Ferdinand Marcos Jr. may implement the merger of the two Congress-created state banks without the need for legislative action. The position paper presented by Tiñga to DBP employees said that the power to issue a legal opinion on such a delicate issue involving government-owned or -controlled corporations belongs to the OSG or the OGCC, depending on the circumstances. This, it said, is covered by the Administrative Code of 1987 and Republic Act No. 2327 as amended by RA 6000. The Tinga paper argues that the merger espoused by Diokno is strongly opposed by officials and employees of the DBP, most of whom would lose their jobs if the merger were to push through with LandBank as the surviving entity. The Tinga paper says that the legal study done by the GCG in interpreting its own Charter is a "self-serving declaration" favorable to its interest and is "not admissible as proof of the facts asserted."
The Tinga paper adds that the "legal study" should have been left in the capable hands of the OSG and the OGCC, which are mandated by their respective charters to serve as the lawyers of the government together with its units and GOCCs.
Contrary to the GCG's "legal study", Tinga says that there is nothing in the decision in Lagman vs. Executive Secretary which supports its conclusion that the President has the power to merge GOCCs even in the absence of an enabling legislation.
The Tinga paper describes the authority of the GCG in relation to the merger or reorganization of GOCCs under Section 5 (a) of R.A. 10149, as “merely recommendatory” to the President.
Tinga argues further that the biggest legal issue is that since the two state- owned banks were created by acts of Congress, the merger requires an enabling law. Tiñga is a former law dean, congressman and jurist who served as Associate Justice of the Supreme Court.
CONFLICT OF INTEREST
The Tinga paper also cites anapparent conflicts of interest involving Diokno.
As Finance Secretary, Diokno is an ex-officio member of GCG to which the merger proposal was submitted. Also, he is the ex-officio chairman of Land Bank and will remain so after it becomes the surviving "super bank" following the merger.
And on top of that, the Tinga paper insists that Diokno, who was governor of the Bangko Sentral ng Pilipinas before his appointment to the Cabinet, is a member of the
Monetary Board of the BSP which regulates banking in the country.
BIG BUBBLE
The DBP position paper says there is no convincing justification or compelling need for the DBP and Land Bank to merge. It said “the proposed merger, with its far-reaching economic and social costs, should not be railroaded.”
Instead, it should only be pursued "after painstaking study and evaluation of all
economic and legal factors involved and in consultation with stakeholders as well as with financing and banking experts."
Tinga’s position paper further says that the two banks were created by law with different mandates: DBP's mandate is to develop industry while LBP's is to develop agriculture. The Tinga paper debunks the union of two institutions, saying it might only result in the dilution of their respective missions and focus.
“Bigger is not always better and stronger,” Tinga says. The merged bank may become ‘too big to fail, too big to save.’ The concentration of risks can leave the resulting super bank more vulnerable to financial market bubbles and cyberattacks.”
DBP AS SURVIVING ENTITY
The Tinga paper says that the biggest banks in the world are not state-owned. In fact, the best practice in Southeast Asia is to have specialized development banks, it added.
“None of Secretary Diokno's justifications for the merger qualifies under the specific standards of RA 10149, the GOCC Governance Act of 2011, which exclusively enumerates the standards by which it may reorganize, merge, streamline, abolish, or privatize GOCCs,” it said.
Tinga’s paper warns that the resulting monolithic government bank may violate the Philippine Competition Act and National Competition Policy, which are designed to foster a level playing field between public and private businesses, and may also pose a grave threat to private capital as it can venture into commercial banking with a substantial advantage of access to fundsastheofficialdepositorybankof the government.
“If a merger is inevitable, the DBP with its richer legacy, more extensive experience and expertise and better track record in development financing, is more deserving to be the better surviving bank,” the Tinga paper insists.
Tinga says the DBP is prepared to work with Congress and to participate and provide unequivocal support to
any Congressional inquiry that may be undertaken concerning the proposed merger with LandBank.
LANDBANK ON THE BALL
Smarting from criticisms, Land Bank says it has not “failed in its mandate” of supportingtheagriculturesector.
Land Bank has its substantial lending to small farmers and fishers nationwide as a proof of its sustained support to the agriculture sector.
Farm loans extended by the Land Bank as of March 2023 increased 14.8 percent year- on-year to P271.8 billion.
Of that amount, P42.3 billion directly benefitted small farmers and fishers nationwide.
Majority of national government agencies and other government- owned and controlled corporations also tap Land Bank as their major depository bank, which also services their collection and disbursement requirements through the On-line National Collection System.
‘RETHINK THEIR MANDATES’
Although the BAP as a group has declined to comment on the merger, a bank economist weighs in on the issue.
Mergers and consolidations have been encouraged in the local banking industry for many years as there have been incentives to do so in the past, says Michael Ricafort, the chief economist of Rizal Commercial Banking Corp. “Mergers also are based on global best practices, for state-owned banks and how they operate.”
Although these are state-owned banks, Ricafort says, “there may be a need to further improve operational efficiencies and prevent overlap in terms of functions and presence in different areas/LGUs served.”
Ricafort suggests “the need to rethink their respective mandates, rationalize the primary reasons for their creation, and (determine) if there is a need to calibrate and make [them] more relevant].”
Lately, Diokno revised his timeline and said that the legal merger between Land Bank and the DBP would be pushed back to the first half of 2024.
Although these are state-owned banks, there may be a need to further improve operational efficiencies and prevent overlap in terms of functions and presence in different areas/ LGUs served.
