GFIs seek regulatory relief for MIF contributions

MANILA, Philippines — Government financial institutions (GFIs), led by Land Bank of the Philippines and Development Bank of the Philippines (DBP), are seeking regulatory relief from the Bangko Sentral ng Pilipinas (BSP) for their contributions to the sovereign wealth fund.

DBP president and CEO Michael de Jesus said the relief is related to deduction of their contributions to the Maharlika Investment Fund in the computation of their capital.

“I understand both Landbank and DBP requested for regulatory relief from the BSP,” De Jesus said.

Under BSP regulations, contribution to the sovereign wealth fund must be deducted from the computation of capital.

“We seek relief that our contribution not to be deducted from capital,” De Jesus said.

BSP Governor Eli Remolona Jr. said the contributions of both GFIs to the Maharlika Investment Fund could reduce their respective equity position.

“So, it may put them non-compliant with our capital requirements,” Remolona said.

The BSP chief said that both Landbank and DBP are still compliant with the threshold even after making their contributions to the sovereign wealth fund.

“In principle we can provide forbearance, which allows them not to comply for a period of time. But they will be expected to comply at some point. Forbearance is always temporary,” Remolona added.

Ma. Cynthia Sison, director at the central bank’s Supervisory Policy and Research Department, said both banks do not want to significantly reduce their capital position as they continue to contribute the initial seed fund for the sovereign wealth fund.

“They still want to be compliant. They don’t want their capital position to decline substantially because of that. But they will still comply,” Sison said.

Sison said the regulator has yet to receive an application pertaining to the planned merger between Landbank and DBP.

“Right now we have not received any application for merger,” she said.

Finance Secretary Benjamin Diokno has been pushing for the merger of the two GFIs to create the largest bank in the Philippines with an asset base of P4.18 trillion and deposits totaling to P3.59 trillion.

Diokno, who is chairman of Landbank, said the merged bank would be in the best position to serve as the sole authorized government depository bank for all state agencies and corporations, government instrumentalities and local government units.

A key strategic benefit of having a single government bank, according to Diokno, is to simplify transactions with counterpart banks, multilateral development banks and regional development banks.

Likewise, the merged entity with Landbank as the surviving bank aims to achieve synergies that would enhance the efficiency of operations and generate cost savings for the government.

Remolona reiterated that the country’s banking system is in very good shape despite the financial incidents involving the Silicon Valley Bank in the US and Credit Suisse in Switzerland early this year.

“The lesson is, we need to maintain regulatory standards, but at the same time we should always watch out for things that could happen that are not covered by the usual regulatory standards,” Remolona said.

As of end-August, the Philippine banking system remains on solid footing with an asset base increasing by 8.6 percent to P23.5 trillion, as well as a 9.5 percent rise in loan book to P13 trillion.

The industry’s deposit base climbed by eight percent to P17.9 trillion in end- August, while earnings surged by 27.7 percent to P182.8 billion in the first half of the year.

Likewise, Philippine banks remained well capitalized with a capital adequacy ratio (CAR) of 16 percent as of end-March and a liquidity capital ratio of 183.1 percent as of end-June.