MANILA, Philippines – The Landbank of the Philippines (Landbank) will no longer be required to remit any portion of its earnings for calendar year 2022 to the national government, President Ferdinand Marcos Jr. ordered.

This comes after Landbank and the Development Bank of the Philippines (DBP) were required to fork over P75 billion of their capital for the Maharlika Investment Corporation’s start-up money. 

The state banks’ massive contribution to the controversial sovereign wealth fund left them in a weakened state. Both Landbank and DBP have already requested regulatory relief from some central bank rules, which will help them in rebuilding their capital. (READ: Behind ‘regulatory relief’: Landbank, DBP’s challenge after funding Maharlika)

Landbank, the country’s second largest bank based on asset and deposit size, will now get more government assistance after Marcos exempted it from having to remit any of its net earnings in 2022 to the national government.

“Pursuant to Section 5 of RA No. 7656, the percentage of net earnings to be declared and remitted by [Landbank] to the National Government for CY 2022 is adjusted from fifty percent of its annual net earnings to zero percent,” Marcos declared in Executive Order 43, signed on Wednesday, October 11.

Like all government-owned or -controlled corporations, Landbank used to remit at least 50% of its annual net earnings as cash, stock, or property dividends to government coffers. 

Landbank’s 0% dividend rate under the executive order will only be applicable for its 2022 calendar year earnings.

According to EO 43, Finance Secretary Benjamin Diokno recommended that Landbank be exempted “to support the capital position of [Landbank], maintain its compliance with Bangko Sentral ng Pilipinas regulations on capital adequacy requirements, and expand its role in the economic recovery of industries adversely affected by the COVID-19 pandemic, in the interest of national economy and general welfare.”

Although the executive order mentioned the need for Landbank to rebuild its capital, it did not mention Landbank’s P50 billion required contribution to the Maharlika fund that compromised its capital position in the first place.

Economists – rightfully – expected state banks to keep their earnings rather than remit it to the national government. That means less public funds for public programs and projects – at least while the two banks are rebuilding. (READ: [ANALYSIS] Maharlika fund: New law, new lies)

Besides reduced remittances to the government, economists also warned that Landbank and DBP might need to cut back on the loans that they give out to farmers and small businesses so that they don’t further violate the central bank’s capital adequacy ratio.

Remaining strong and adequately capitalized

In a statement released Sunday, October 15, Landbank said it “remains strong, adequately capitalized, and compliant with regulatory requirements” of the Bangko Sentral ng Pilipinas (BSP).

The statement said that as of June 2023, Landbank’s “Capital Adequacy Ratio (CAR) remains at a very
healthy level of 16.61%, well above the 10% minimum requirement of the BSP, while our Common Equity Tier 1 (CET 1) ratio stands at 15.73%, also compliant with the 10.25% CET 1 requirement.”

Landbank added, “Even with the Bank’s P50 billion seed capital to the MIC as mandated by Republic
Act No. 11954, otherwise known as the Maharlika Investment Fund Act of 2023, the
Bank will meet its CAR requirements.”

The BSP tracks CAR and CET 1 ratios of banks to ensure they are capable of absorbing a reasonable amount of financial risks and still comply with statutory capital levels. Both capital ratios indicate a bank’s financial strength and how well a bank can weather financial challenges. A higher CAR, Landbank noted, means a bank is more financially stable and secure. – Rappler.com