MANILA, Philippines – The Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP) might get some flexibility from the central bank’s rules after the government required them to fork over billions for the start-up capital of the Maharlika Investment Corporation.

As of mid-September, the state banks remitted a total of P75 billion to the controversial sovereign wealth fund. Under the law creating the Maharlika fund, Landbank and the DBP are required to deposit P50 billion and P25 billion, respectively. 

But giving away so much of their money has raised questions about whether these banks would still have enough left to meet the Bangko Sentral ng Pilinas’ (BSP) rules on capital adequacy, or the amount of money they must have set aside to cover their obligations and debts. 

Have they already asked the central bank for “regulatory relief?”

“The answer is yes,” BSP Governor Eli Remolona Jr. said in a press chat on Wednesday, October 11. “They are providing – essentially – capital, which reduces their equity.”

At least one of the state banks has discussed the possibility of regulatory relief with the BSP. But currently, both banks are still compliant with their capital requirements even after putting tens of billions in the Maharlika Investment Corporation, Remolona said. 

“In principle, we can provide forbearance, which means we can allow them not to comply for a period of time. This is in principle. This is what’s done elsewhere. But they will be expected to comply at some point. Forbearance is always temporary,” he told reporters.

In the event that one of these banks does obtain relief, it would be required to disclose this to its stakeholders, BSP Supervisory Policy and Research Department Director Cynthia Sison said.

Economists have previously raised concerns that diverting so much capital away from these state banks could impair their ability to lend to the agricultural sector and make them more vulnerable to bank runs.

What happened to the Landbank-DBP merger?

Earlier in 2023, the Marcos administration revived plans to merge Landbank and DBP into one government “superbank.” Finance Secretary Benjamin Diokno went as far as saying the merger could be approved by the BSP’s Monetary Board by October 2023. (READ: EXPLAINER: What’s behind the revived Landbank-DBP merger?)

But when asked about the status of the merger, BSP Governor Remolona said that the decision wasn’t in their hands.

“It’s not up to us. Once they decide to merge, then we will go ahead and look at the books of the merged entity,” he said.

Remolona and Sison both confirmed that the BSP has yet to receive any application for a merger between the two banks.

The proposed merger of the two state banks would create the largest bank in the country – one that’s supposedly financially stronger and more efficient. But the DBP in particular has strongly opposed the merger, saying that the new “superbank” could be “too big to fail, too big to save.” 

From a regulatory standpoint, the BSP said that it was “ready,” once the merger is submitted for their approval.

“We’re ready to supervise a merged entity, but in the meantime, we supervise them separately,” Remolona said. – Rappler.com