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DBP's Tiñga: Merger with Landbank is a dangerous experiment

The Development Bank of the Philippines (DBP) stood firm in its opposition to the proposed merger with another state-owned bank, the Land Bank of the Philippines, warning of its potential adverse impact on the economy and the financial system should the “superbank” collapse.

At a press briefing in Makati City, DBP chairman Dante Tiñga said that the “superbank” resulting from DBP's merger with Landbank —the latter as the surviving entity— would be “too big to fail, too big to save.”

“If there is only one state bank and that collapses, imagine what would happen to the economy? The conventional wisdom is 'do not put all your eggs in one basket,'” Tiñga said.

Landbank is the Philippines’ second largest universal bank with P2.76 trillion in assets, next to BDO Unibank with P3.73 trillion in assets.

The DBP ranked eighth with P1.035 trillion worth of assets.

If the merger materializes, Landbank as the surviving “superbank,” would be the largest bank in the country with assets worth about P4 trillion.

“That ‘superbank’ could have assets totaling P4 trillion. If it collapses, P4 trillion will go to waste… We cannot get away with that loss,” Tiñga said.

The DBP chairman said that both banks were already doing well on their own.

“Why rock the boat if it is running smoothly? This proposed merger is a dangerous experiment,” he said.

While it stands firm in opposing the proposed merger, DBP said it should be the surviving entity if the plan pushes through.

 “If merger is inevitable, the DBP should be the surviving entity because of its richer legacy, more extensive experience, and expertise and better track record in development financing," Tinga said.

“It’s more deserving to become the surviving bank,” he added.

Finance Secretary Benjamin Diokno had defended the proposed merger of Landbank and DBP, arguing that it would eliminate redundancy and inefficiency in operations.

In a separate statement, Diokno said that contrary to the claim that the merger was a “dangerous experiment,” the proposal was the result of “careful analysis of the costs and benefits of this merger, based on solid financial and economic evidence.”

“The merger introduces synergies that can result in financial and operational benefits for the new entity,” the Finance chief said.

The Marcos administration’s chief economic manager said that the Landbank-DBP merger would result in at least P5.3 billion in operational cost savings per year or over P20 billion in the next four years.

Need for legislation

Tiñga, citing the DBP’s position paper, also insisted that the merger with Landbank needed enabling legislation.

In April, the Governance Commission for Government-Owned and Controlled Corporations (GCG) submitted to the Office of the President its study, which stated that the Landbank-DBP merger could proceed without legislation.

Tiñga said that since the two state-owned banks were created by acts of Congress, the merger required an enabling law.

He said that the merger should 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” since “there is no convincing justification or compelling need for the DBP and Landbank to be merged."

The DBP chairman also made the following points:

  • DBP and Landbank were created by law with different mandates. DBP's mandate is to develop industry; Landbank is to develop agriculture. The union of two institutions created to serve different mandates may only result in the dilution of their respective missions and focus
  • The combined branches of the two banks would result in a network of the same size and reach
  • While the merged bank may become the largest bank in the country in terms of assets and deposit size, it will still suffer from capital shortage, bad loans, and lazy banking
  • Without a plan of integration, there is only consolidation of assets, and Landbank, as the surviving entity, will just have the same strengths and weaknesses pre-merger; the two banks will be truly complementary of each other's strengths and weaknesses if they are to remain separate and independent
  • Having all the financial resources of the national government, its agencies, GOCCS, government instrumentalities, and local government units in one official depository bank may be more perilous than beneficial for the country
  • The biggest banks in the world are not state-owned. In fact, the best practice in Southeast Asia is to have specialized development banks
  • The resulting monolithic government bank may violate the Philippine Competition Act and National Competition Policy, which were designed to foster a level playing field between public and private businesses, and poses a grave threat to private capital as it can venture into commercial banking with a substantial advantage of access to funds as the official depository bank of the government

Diokno had said that President Ferdinand Marcos Jr. had given the thumbs up for the merger of the two state-owned banks, which he said would result in P5.2 billion per year worth of savings for the government.

The planned merger of Landbank and DBP was first pushed by then-President Benigno Aquino III in 2016 but was abandoned by the Duterte administration due to concerns that this would not serve the public interest because the banks were created for different purposes.

In his statement, Diokno said that 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.

“The improved financial position will allow the new entity to lend more for priority projects. With projected operational savings from the merger, it can lend an additional P80.3 billion per year,” the Finance chief said. — DVM, GMA Integrated News