THERE is an urgent need for capital restoration plans for the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP), following their hefty contributions to the Maharlika Investment Corp.’s (MIC) startup capital, according to the International Monetary Fund (IMF).
In its Philippine Staff Report, the IMF warned against potential risks to the financial system if the capital restoration plans are not promptly enacted and regulatory relief measures are not phased out swiftly.
A capital restoration plan is undertaken for a bank to return its permanent and total capital to levels comfortable enough to fulfill its risk-based and minimum capital requirements within a reasonable period of time.
“Implementing capital restoration plans for two state-owned banks following their contribution to the Maharlika Investment Corp. startup capital and exiting regulatory relief as soon as possible is important,” the IMF said.
LandBank and DBP shelled out P50 billion and P25 billion, respectively, as contributions to the P500 billion authorized capital of the MIC, a sovereign investment company, which the Marcos administration established to fund economic development projects.
LandBank President Ma. Lynette Ortiz and DBP President Michael de Jesus were each given seats on the nine-member MIC board.
In its report, the IMF said: “While the establishment of the MIC can help address the country’s investment needs, it should not come at the cost of a resilient financial system, sound regulatory framework, and level playing field.”
Regulatory relief, which was extended to the banks to facilitate their participation in the MIC’s funding, should be temporary and withdrawn as soon as feasible to maintain the credibility and robustness of the regulatory environment, the IMF stressed.
Both banks assured that extending their regulatory relief is not being considered at present.
Ortiz said the temporary measure would last two to three years, during which LandBank and DBP are exempted from the minimum capital requirements set by the Bangko Sentral ng Pilipinas (BSP).
A previous plan to merge LandBank and DBP had been scrapped. Finance Secretary Ralph Recto has suggested that the two banks could still be strengthened through increased capitalization and a public listing.
On July 30, Senate President Francis Escudero filed Senate Bill 2760, which would raise LandBank’s authorized capital stock from P200 billion to P1 trillion, and Senate Bill 2761 to increase DBP’s own capital stock from P35 billion to P300 billion.
The bills will give both banks the opportunity to raise their capital by going public.
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