Restore Landbank, DBP capital, IMF urges gov’t

The International Monetary Fund (IMF) said the government must quickly restore the capital of the two state-owned banks following their hefty contributions to the Maharlika Investment Corp. (MIC) in order to protect the resilience of the local financial system.

In a country report, the IMF said it is “important” to replenish the funds of Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP), and for the two lenders to exit regulatory relief “as soon as possible”.

Both Landbank and DBP hold significant shares in MIC, the start-up company managing the country’s nascent sovereign wealth fund.

”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,” the Washington-based institution said.

Recall that Landbank and DBP remitted to the Bureau of Treasury their combined P75-billion contribution, representing 60 percent of the P125-billion initial capitalization of MIC.

The rest of the money came from the national government, mainly from Bangko Sentral ng Pilipinas (BSP) dividends, state share in the earnings of the country’s gaming regulator, proceeds from privatization, royalties and other sources.

Critics had said the creation of the MIC was ill-timed amid the stubbornly high inflation at the time and the absence of surplus state resources typically needed for such a fund. Others said the money from Landbank and DBP would have been better used to support agricultural production and rural development as per the banks‘ mandate.

The BSP earlier said the mammoth infusions by Landbank and DBP had reduced the liquidity of the banks, which might make them noncompliant with capital requirements set by regulators.

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That said, the two lenders were given regulatory relief that would last for two to three years. During that period, both Landbank and DBP can enjoy a reprieve from the minimum capital requirements set by the BSP.

Both Landbank and DBP had said an extension of the regulatory relief is not on the table.

In its country report, the IMF said it had been told by local authorities that the two state-run lenders are pursuing “capital-management strategies that strengthen their capital position” after investing in MIC. This includes potential nonpayment of dividends to the national government.