PRESIDENT Ferdinand R. Marcos Jr. is now pushing for the merger of Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP) as part of government efforts to cut costs and boost the efficiency of its banking operations.
He greenlit the proposal for LBP to absorb DBP during a meeting with the economic cluster of his Cabinet on Tuesday.
“The President expressed the desire to merge the two to make it the biggest bank in the country because of the recent financial developments abroad. And that’s really the best practice—the biggest bank usually is owned by the state globally,” Finance Secretary Benjamin E. Diokno said in a press conference in Malacañang.
Marcos initially opposed the merger back in 2016, when he was still a senator, saying it can deprive farmers of access to banking services.
Diokno, however, noted that the President changed his position after being elected last year
and tracking latest “international developments.”
Merger benefits
The government is expected to save P5.3 billion annually with the expected implementation of the merger before the end of the year, according to Diokno.
“So for the next four years at least P20 billion [savings]. 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 [Bonifacio Global City], various branch properties, equipment and licenses and income that can be derived from the proceeds of such sales,” he said.
The merger will also translate to LBP having a “bigger headroom for loans than can be utilized for development projects,” and for the government to forego the need to recapitalize DBP from P30 billion to P100 billion.
It also aims to strengthen the government banking services amid prevailing global bank closures, which included Credit Suisse.
“So there is really a strong need for solidifying the government bank,” Diokno said.
Once the merger is implemented, it will make LBP the biggest bank in the country in terms of assets and deposits size.
“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,” Diokno told reporters in a Viber message.
Operational impact
The DOF chief immediately stressed that there are no issues in the operations of both banks, and they are simply trying to streamline the operations of the two entities.
He pointed out that the two banks are practically doing the same thing, with just one difference: LBP is focused on agriculture loans, while DBP targets industrial clients.
DOF assured the public the merger will not affect the existing services currently being provided by both banks.
“The merger complements the strengths and addresses the weaknesses of the two banks,” Diokno said.
The existing board of LBP will also be retained after the merger.
However, DOF admitted that the process will lead to the retrenchment of some government employees due to redundancy and reduction in the number of bank branches.
LBP currently has 752 branches, while DBP has 147.
Diokno assured the affected workers that they will be provided a “liberal separation package” during the transition phase of the merger.