Santiago F. Dumlao Jr. l October 25, 2023 l Business Mirror
WE cannot let this episode just pass by and be obscured as trivial.
For the Land Bank of the Philippines (Landbank) and the Development Bank of the Philippines (DBP) to contribute billions of their funds to the Maharlika Investment Fund (Maharlika), and soon thereafter hasten to go to the Bangko Sentral ng Pilipinas (BSP) for regulatory relief because their contributions to Maharlika could impair their required capitalization—this is the height of imprudence.
DBP President Michael O. de Jesus is reported to have explained: “the relief is related to the fact that under the BSP regulations, our contribution to Maharlika must be deducted from the computation of capital. We seek relief that our contribution not be deducted from capital.”
Landbank remitted P50 billion and the DBP remitted P25 billion to Maharlika. View this against Landbank’s authorized capital of P200 billion and DBP’s authorized capital of P35 billion.
Sure, Landbank and the DBP are not yet in violation of BSP’s capital requirements, we are assured. In extenuation, the banks reason out that their request for regulatory relief is simply a pre-emptive measure, a defensive anticipatory move to avoid becoming non-compliant, well, just in case. Simply put, it’s asking for exemption from the BSP rules on capital adequacy.
Obviously, the fat contributions to Maharlika have weakened the required capitalization position of the two banks where, by the way, government agencies, including LGUs, are required to deposit their funds.
BSP Governor Eli M. Remolona Jr.’s comment—warning, really—sounds like a gentle voice but is fraught with meaning: “For now they’re still compliant, even after their contribution to Maharlika. In principle, we can provide forebearance, which allows them not to comply for a period of time. But they will be expected to comply at some point. Forebearance is always temporary.”
The board of directors of Landbank and DBP certainly should have known that their act of “investment generosity” to Maharlika would impair or weaken their capitalization, for which reason they had to run for regulatory relief, i.e. run for cover. And if they knew, why did they proceed with this act of imprudence?
Let us admit, this is probably a “behest” contribution imposed by “higher authority.” But couldn’t the top management of the banks have raised objections and warnings? Notably, the chairman of Landbank is a former BSP Governor.
Of course, the whole idea of the Maharlika Fund and contributions to it are attributable to the genius of Congress. In fact, Congress pushed this special piece of legislation against the opposition of many in academe, business and media.
Responding to this issue of capitalization impairment, the President ordered that the Landbank would be exempted from remitting 50 percent of its 2022 cash dividends to the national treasury, as is required of government corporations. But how could this be enough rectification?
And now, the President follows through on October 12, 2023, by ordering the suspension of the implementation of the Maharlika Investment Fund’s IRR, (implementing rules and regulations) pending further study. It’s an embarrassing admission of a big mistake somewhere, that could have been avoided in the first place.
Bank capitalization requirements have a good reason for being there and are not to be taken lightly. They assure liquidity. They assure financial stability, not just of the bank but of the whole financial system of which they are a part. And nowhere is this more important than when you are a big bank with large deposits and number of depositors.
So what shall this mean to Maharlika? And to Landbank and DBP top management? And to the President’s pet project?
As we write this piece (October 19, 2023), the President, on his departure for a foreign trip, is reported to be surprised with the news reporting that the Maharlika’s implementation is suspended. On the contrary, he says, Maharlika is moving on. They just have discovered some other things about Maharlika that can be improved.
Ano ba yan kuya?
*** Santiago F. Dumlao is the Secretary General of the Association of Credit Rating Agencies in Asia and chairman of the market governance board and market policy committee of the Philippine Dealing & Exchange Corp. His views do not necessarily reflect those of the Business Mirror’s.