mergers and acquisitions

Landbank denies it ‘failed its mandate’ as merger with DBP looms

Lance Spencer Yu

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Landbank denies it ‘failed its mandate’ as merger with DBP looms

David Castuciano

The state agri lender says P42.3 billion of its outstanding loans have directly benefited small farmers and fishers – a defense it raised after being labeled a ‘dismal failure’ by fellow state bank DBP

MANILA, Philippines – The Land Bank of the Philippines (Landbank) is on the defensive days after the Development Bank of the Philippines (DBP) called the state agricultural lender a “dismal failure.”

Landbank said it has extended P271.8 billion in outstanding loans to the agricultural sector as of March 2023, up 14.8% year-on-year. Of that amount, P42.3 billion was said to have directly benefited small farmers and fishers around the country. 

It also pointed out that it grew its total agri loan portfolio at an average rate of 10.4% from 2012 to 2022, despite the sector only expanding by 0.64% over the same period.

“Landbank has remained faithful to its social mandate of promoting inclusive and sustainable development, primarily by being the biggest credit provider to the agriculture sector reaching all components of the agriculture value chain,” it said in a statement on Thursday, May 11.

However, an examination of Landbank’s 2021 annual report also shows that loans to the agricultural sector do not make up the majority of its loan portfolio. In 2021, about two-thirds – P587.3 billion – of the state bank’s loans went to the government’s other priority projects. These include micro, small, and medium enterprises; utilities; housing; logistics; education; healthcare; environment; and tourism.

Only 30% of all loans, or P248 billion, went to agriculture. And 84.7% of all agricultural loans were given to “other players in the agri-business value chain,” with less than 16% of agricultural loans eventually finding their way to “small farmers and fishers, cooperatives, and farmers’ associations.”

This means that of about P880.4 billion in the bank’s total loans, only P38.8 billion – or 4.4% – reached small farmers, fishers, cooperatives, and farmers’ associations.

EXPLAINER: What’s behind the revived Landbank-DBP merger?

EXPLAINER: What’s behind the revived Landbank-DBP merger?
Landbank-DBP merger woes

This comes as the impending Landbank-DBP merger draws mixed reactions. 

Its supporters – led by Finance Secretary Benjamin Diokno – claim that merging the two banks to form the largest bank in the Philippines would make a “bigger and stronger bank to better serve the country’s development needs.”

Detractors – like the DBP, which would cease to exist should the merger push through – fear that combining the two banks could cause 3,000 DBP employees to lose their jobs, on top of forming a bank that would be “too big to fail, too big to save.”

The DBP has been particularly vocal in its opposition. In a press conference on Tuesday, May 9, DBP Chairman Dante Tinga called Landbank a “dismal failure” for supposedly not fulfilling its mandate. 

“What is the record of Landbank, by the way? It’s a failure. It’s not been able to accomplish its mandate. The agrarian reform program is a failure. You’re suffering from low agricultural production. We don’t have food security,” Tinga said.

“It’s [entrusted] with enormous capital and yet it failed,” the chairman added. “It is a dismal failure.”

Tinga also argued that DBP should be the surviving entity, not Landbank.

“DBP should be the surviving entity because of its richer legacy, more extensive experience and expertise, and better track record in development financing. It’s more deserving to become the surviving bank,” he said.

Union Bank of the Philippines president and chief executive officer Edwin Bautista also raised the risk of the merger potentially distracting the banks from fulfilling their mandates – a concern also raised by the DBP.

“The mandate was to take on big infra projects. The other one, the mandate is agriculture. Now, the problem is, over the last few years, neither of them have fulfilled the mandate. I’m just quoting the articles of the newspapers,” Bautista said on the sidelines of the AI Summit PH 2023 on Wednesday, May 10.

“The problem when you have that is you may lose focus. Who is going to worry about agriculture? Who is going to worry about the infrastructure?” – 

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Lance Spencer Yu

Lance Spencer Yu is a multimedia reporter who covers the transportation, tourism, infrastructure, finance, agriculture, and corporate sectors, as well as macroeconomic issues.