MANILA, Philippines — The upcoming merger with Development Bank of the Philippines, another state-run lender, means Land Bank of the Philippines would have a bigger role in the government’s policy thrust, Fitch Ratings said.
This also means LandBank, which would be the surviving entity, would get more government support, boding well for its financial health.
“From a credit rating perspective, we think that its higher systemic importance along with the bank taking on the combined policy roles of its constituents will likely increase its strategic value to the state as a policy bank,” Tamma Febrian, director at Fitch Ratings, told Philstar.com in an e-mail.
“All else equal, this suggests that the state’s propensity to support the bank should become higher,” Febrian added.
LandBank caters to the needs of the agriculture sector, while the DBP hands out development loans for the sector in its capacity as a development bank.
Finance Secretary Benjamin Diokno said President Ferdinand “Bongbong” Marcos Jr. has approved the merger of the two banks, a plan that goes way back to the administration of the late Benigno Aquino III.
The plan was dropped by the previous Duterte administration when it stepped into power in 2016, as former Finance Secretary Carlos Dominguez III had argued that the merger “will not serve the public’s interest” since LandBank and DBP have different functions.
As it is, the merger could come amid a banking crisis taking shape globally. Diokno said there’s a need to strengthen the position of government banks.
Even Marcos had, in the past, voiced loud opposition to the merger. When he was gunning for the vice presidency in 2016, then-Senator Marcos said a merger between the two banks would cut much-needed support to farmers.
Diokno said the merger could result in the largest banking entity in the country. But Fitch Ratings noted that the combined asset size of LandBank and DBP — or about P4.2 trillion — would just be slightly larger than that of BDO.
‘Too big to fail’
Some Senate lawmakers turned a critical eye towards this merger. Sen. Risa Hontiveros inquired about the timing of this consolidation, as the plan would effectively create a banking entity that could be “too big to fail,” a callback to the 2008 Financial Crisis.
“We need a bank that remains focused on agriculture because this is the sector that does not really interest private commercial banks. The merger may result in funds being diverted to the more bankable commercial and industrial sectors already adequately served by the private sector,” she said in a statement.
Sen. Sherwin Gatchalian opposed the merger as well, saying the move would create a “super monopoly” that would strip local governments of any agency.
“It’s bad for our local government,” he said on Tuesday.