President Benigno Aquino III has approved the merger of state-run Land Bank of the Philippines and Development Bank of the Philippines to create the second largest lender with total assets of over P1.6 trillion.
Aquino issued Executive Order No. 198, approving the merger of the two government-owned banks, with LandBank as the surviving entity, given its bigger assets and branch network.
The merger will create the second largest bank, behind BDO Unibank Inc. with P1.88 trillion in assets as of end-September 2015. It will surpass Metropolitan Bank & Trust Co.’s assets of P1.37 trillion and Bank of the Philippine Islands’ P1.16-trillion resources.
LandBank, the fourth largest lender, had P1.14 trillion in assets as of end-September while DBP had P465 billion.
President Aquino issued the order after the Government Commission for GOCCs determined it was in the best interest of the state to merge the two banks.
“The functions of DBP and LBP duplicate and/or unnecessarily overlap with one another; The merger of DBP and LBP will further enhance the financing of priority projects and sectors such as infrastructure, public services, agriculture/agrarian reform and SMEs; and the merger will provide better access and extend quality financial services and products to more unbanked and underserved areas,” the EO said.
GCG earlier sent a draft executive order to Malacanang that would authorize the merger without the need for a legislative measure. GCG will undertake a reorganization plan that will affect hundreds of employees of both banks and implement a compensation and position classification system for the merged bank.
Affected employees with more than 31 years of service will receive a merger incentive pay equivalent to 1.5 of basic monthly pay for every year of service while those with 21 to 30 years in service will get 1.25 of basic monthly pay. Those with 20 years of service and below will receive a merger incentive pay equivalent to 1 month of basic monthly pay for every year of service.
The government will also infuse P30 billion into the merged bank to support its capital.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said a written consent from
Philippine Deposit Insurance Corp. and the approval of Bangko Sentral were needed for the merger.
“The BSP has yet to receive a formal application from the parties involved, which is the normal procedure for a standard merger of entities in the banking system. This should include the national government’s plans and business case for the merger,” he said.
Tetangco said a merger of the two banks was actually in line with Bangko Sentral’s advocacy for bigger and better banks, and would potentially allow the national government to benefit from economies of scale in the banks’ operations.
“A law or EO is just their legal basis to merge being government banks. Like all banks, they still have to get Monetary Board approval,” Bangko Sentral Deputy Governor Nestor Espenilla Jr. said in a text message.
“Parties involved will have to file merger application with BSP for MB approval. No request for merger has so far been submitted to BSP,” Espenilla said.
Finance Secretary Cesar Purisima said in a statement “the merger bodes well for stability of our banking system.”
“With better capital adequacy and robust resources, we can expect government banking to continue growing, especially in terms of efficiency and size of the public served,” Purisima said.
Catherine Rowena Villanueva of the corporate affairs department of LandBank, said the bank would not issue any statement “until such time we receive the official advice… We have only received thus far unofficial information regarding the approval of EO 198.”
DBP officials, meanwhile, were not available for comment.