PUBLIC advocacy group Foundation for Economic Freedom (FEF) is proposing that the two state-run banks’ contributions to the Maharlika Investment Fund (MIF) be on a staggered, rather than lump-sum, basis.
The shares of the Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) to the seed MIF pool must be “phased in” over several years, according to the organization.
The length of the phasing in shall “depend” on the number of financially viable projects as determined by the MIF board, the FEF said through a statement.
“A lump sum capital contribution would likely be idle and unproductive since it would take the MIF several years to organize, identify, and vet the projects worthy of investment,” the FEF said last Tuesday.
The economic-reform advocates explained that the benefits of the phased-in capital contribution would allow the two banks to continue extending loans to farmers and development projects without straining the banks’ capitalization.
“The lump sum contributions of DBP and LBP will be charged against its capital in their balance sheets and constrain their ability to extend loans,” it said.
“On the other hand, a phased-in contribution will allow the government financial institutions (GFIs) to continue to extend loans, build up their profitability, and further boost their capital,” it added.
The phased-in contribution would also prevent a credit rating downgrade for the two GFIs, which could be detrimental to their costs of borrowings.
The FEF said its proposal would also “alleviate” pressure on the Bangko Sentral ng Pilipinas (BSP) to extend regulatory relief to the DBP and the LBP.
This, the group emphasized, would avert setting an “unwelcome precedent” that could have repercussions to the country’s financial industry, especially in the long run.
Lastly, the phased-in contribution scheme would prevent the DBP from violating the General Banking Act that mandates that “the equity investment in any one enterprise shall not exceed 25 percent of their net worth,” the FEF said.
“We also recommend that the IRR make it easier for multilateral institutions and foreign investment funds to be part of the MIF to improve governance and adherence to the Santiago Principles for Sovereign Wealth Funds,” it said.
The LBP and the DBP have already remitted their P50 billion and P25 billion, respectively, to the Bureau of the Treasury in compliance with their contributions to the MIF.
Earlier this week, President Ferdinand R. Marcos Jr. announced the new version of the Implementing Rules and Regulations (IRR) of the MIF has been finalized after it was reviewed last month. (Related story: https://businessmirror.com.ph/2023/11/07/pbbm-approves-maharlika-fund-revised-irr/)
Last month, the LBP reported posting a net income of P31.85 billion in the first nine months of the year.
In a statement on its website, the LBP said it also booked double-digit growth in total assets of 11.5 percent to P3.1 trillion from P2.8 trillion. The increase was propelled by the 12.8 percent year-on-year expansion of deposits to P2.7 trillion, the lender said.
Meanwhile, the LBB said its capital rose substantially by 21.9 percent to P249.2 billion from P204.4 billion in 2022, already exceeding the full-year target of P243.8 billion for 2023.
Meanwhile, the DBP reported in August that its net income for the first six months of 2023 rose 60 percent to hit P4.42-billion, compared to the P2.76-billion that the Bank posted during the same period last year.
The DBP quoted its DBP President and CEO Michael O. de Jesus as saying that the state-owned bank posted a 4 percent growth in total deposits to P760-billion due to higher term and non-term deposits and registered a modest capital increase of eight percent to P83.64-billion from the P77.54-billion recorded during the same period in 2022.