Duterte approves Landbank-UCPB merger

President Rodrigo Duterte approved the merger of state-controlled banks Land Bank of the Philippines (Landbank) and United Coconut Planters Bank (UCPB).

The merger, stipulated in Executive Order (EO) No. 142, is part of the objectives of Republic Act No. 11524 or the Coconut Farmers and Industry Trust Fund Act, which aims to consolidate benefits of coconut farmers specified in various statutes. (READ: Gov't sets up registry to monitor coco levy assets)

The EO was signed last Friday, June 25, and made public on Tuesday, June 29.

After the transaction, Landbank will remain as the surviving entity. All assets and liabilities of UCPB will be transferred to Landbank.

The deal is expected to be finalized within six months.

Post-transaction, Landbank will remain as the Philippines' second largest bank in terms of assets and deposits.

A Landbank statement on Sunday, July 4, said that the merger "will result in combined assets totaling close to P3 trillion by the end of the year."

"The merged assets will significantly grow Landbank's loan portfolio directed at servicing the whole agriculture sector, especially coconut farmers, alongside key development industries. The synergy created by the merger will provide a much better position for us to respond to the evolving needs of our diverse clientele, especially the underserved and unbanked," the statement quoted Landbank president and chief executive officer Cecilia Borromeo as saying.

The EO states that the merger would "significantly strengthen capability to deliver financial services to the coconut industry and the entire agricultural sector, contribute to economic sufficiency, foster countryside development and financial inclusion, and promote stability in the country's banking system."

UCPB personnel who may lose their jobs due to the merger will receive separation benefits. They may also be hired by Landbank, subject to necessary civil service eligibility and other requirements for the position.

The merger is still subject to approval of the Securities and Exchange Commission and conditions under the Revised Corporation Code.

EO 142 also states Landbank's acquisition of the preferred shares of the Philippine Deposit Insurance Corporation (PDIC) in UCPB.

UCPB, a bank originally acquired for the benefit of coconut farmers, remains the subject of rehabilitation. The rehabilitation efforts include financial assistance from PDIC amounting to P12 billion in the form of capital notes, which were later on converted to special preferred shares with the same value.

PDIC sold its special preferred shares in UCPB to Landbank for P12 billion, which was payable with a negotiable debt instrument. The Bangko Sentral ng Pilipinas (BSP) Monetary Board has already approved the selling of PDIC's special preferred shares, which is equivalent to 88.9% of voting shares in UCPB.

Impact on agriculture

In a joint statement on Tuesday, Landbank and UCPB said the merger "will strengthen government efforts to build a stronger, unified banking institution capable of serving coconut farmers and other workers in the agricultural sector."

"The merger will also mean better financial services for UCPB clients, especially those who are in the farm sector. For the clients of both banks, the merger will mean they can now rely on a stronger and better capitalized institution with solid government support," said Borromeo.

Borromeo added that the merger will be beneficial to existing UCPB clients, as they can now access the bigger branch and automated teller machine network of Landbank.

As of December 2020, Landbank's agriculture loans reached P230 billion, comprising 76.95% of its total loan portfolio. It is also significantly above the minimum requirement of 15% specified in Republic Act No. 10000 or the Agri-Agra Reform Credit Act.

Agrarian reform lending stood at 11.5%, also above the 10% requirement.

In its July 4 statement, Landbank said it was also requesting for regulatory incentives being granted by the BSP to banks for mergers and consolidation. "These relief measures will provide the bank the flexibility to manage its capital, achieve operational efficiency, and minimize the expected impact of absorbing UCPB," Borromeo said in the statement.

On the part of UCPB, officer-in-charge Liduvino Geron said the merger will allow the bank to pursue its original mandate "to serve coconut farmers nationwide while providing a wider range of products and services" to other clients. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.