Where its financial institutions are concerned, the government – the administration of Rodrigo Duterte and its predecessor – has been behaving like a father trying to arrange bad marriages for his daughters.
First, there was papa Benigno Aquino III trying to arrange a marriage between the Land Bank of the Philippines (Landbank) – this country’s third largest commercial bank – and the Development Bank of the Philippines. That marriage should not have been attempted at all because the Philippine government needs an institution that performs ordinary banking functions and an institution that performs development banking functions. The first is an apple, the second is an orange. The government needs the orange as much as the apple.
Now here comes papa Rodrigo Duterte trying to arrange a marriage between Landbank and the United Coconut Planters Bank (UCPB). I don’t know how much traction the proposal has gained, but the very idea of a Landbank-UCPB merger bears careful consideration.
At first sight a Landbank-UCPB merger looks very attractive. It would catapult Landbank from No. 3 in the ranking of commercial banks to either No. 2 or No. 1, going past Banco de Oro and Metropolitan Bank. Given that Philippine National Bank (PNB) was the top commercial bank during the decades that it was publicly owned, renewed ownership of the nation’s No.1 ranked commercial bank would be a great source of prestige for the government. In bringing out the idea of a Landbank-UCPB merger, the Duterte administration was obviously thinking of the two-plus-two-equals-five concept. Certainly, synergistic impact is considered in transactions such as the proposed merger, but other factors need to be taken into account in a merger between the two government-controlled commercial banks. These other factors combine to make the proposed merger a bad idea.
For starters, there are the still-unresolved legal issues relating to the ownership of UCPB. Every Filipino who is reasonably well-informed knows that UCPB came into being largely with the use of funds raised from the coconut levy, which the nation’s coconut farmers were forced to pay between 1973 and 1982 for every 100 kilos of their copra. In a December 2001 ruling, the Supreme Court adjudged the coconut levy funds to be “public in character”. In 2003 the Sandiganbayan ordered the forfeiture of 72 percent of UCPB’s total outstanding shares in favor of the government. And during his incumbency President Aquino issued two Executive Orders that laid down guidelines for the inventory and privatization of coconut levy-derived assets (EO 179) and for the reconveyance and utilization of those assets for the benefit of the coconut farmers (EO 180).
The two EOs have yet to be fully implemented, and as long as full implementation is uncompleted, a UCPB merger with any other institution would be legally and practically problematic. Landbank has been operating smoothly; why disturb its operations with the introduction of a judicially unsettled partner? UCPB’s ownership issues – and these are numerous – should be put to rest before it is merged with another banking institution so that the merger will be seamless.
The other major factor that makes a UCPB-Landbank merger and not very bright idea is the difference in the character of the two banks’ operations. True, its operations have come to span the entire range of commercial banking functions, but Landbank’s charter mandates it to prioritize the banking needs of the beneficiaries of the agrarian reform program and other rural groups, including the fisherfolk. To that mandate has been added, in recent years, the servicing of the needs of the OFW (overseas Filipino workers). Landbank should not be distracted from its statutory responsibility.
In contrast, UCPB’s mandate has been clear and unmistakable from the start: that is to service the needs of Philippine coconut farmers, especially the coconut levy payers. Their banking requirements should not be mixed with the requirements of the agrarian reform beneficiaries, the fisherfolk and the OFWs.
Other factors could be brought into the discussion, but I believe that the ones discussed above are sufficient to justify a decision to not proceed – for now – with a merger between UCPB and Landbank. The marriage will not be a happy union.
E-mail: romero.business.class@gmail.com
