THE “legal-study” that recommended the merger of the Development Bank of the Philippines and the Land Bank of the Philippines (LBP) is legally erroneous, done with inordinate haste and encroaches on the mandate of the Office of the Solicitor General (OSG) and the Office of the Government Corporate Counsel (OGCC), according to DBP Chairman Dante O. Tiñga.
The study, conducted by the Governance Commission for GOCCs (GCG) in less than three weeks, concluded that President Marcos can implement the merger of the two Congress-created state banks without the need for legislative action.
A position paper presented by Tiñga to DBP employees on May 9 said the power to issue a legal opinion on such a delicate issue involving government-owned or controlled corporations belongs to the OSG or the OGCC, depending on the circumstances. This, it said, is covered by the Administrative Code of 1987 and Republic Act No. 2327 as amended by RA 6000.
The merger proposed by Finance Secretary Benjamin Diokno is strongly opposed by DBP officials and employees, most of whom would lose their jobs if the merger pushes through with LBP as the surviving bank.
The paper said the GCG’s legal study in interpreting its own charter is a “self-serving declaration” favorable to its interest and is “not admissible as proof of the facts asserted.” The DBP said the study should have been left in the capable hands of the OSG and the OGCC, which are mandated by their respective charters to serve as government lawyers together with its units and GOCCs, respectively.
Contrary to the GCG’s legal study, there is nothing in the decision in Lagman vs. Executive Secretary which supports its conclusion that the President has the power to merge GOCCs in the absence of enabling legislation.
On the authority of the GCG in relation to the merger or reorganization of GOCCs under Section 5 (a) of R.A. 10149, such authority is merely recommendatory to the President. While the Supreme Court debunked the argument of unconstitutionality raised by petitioners Lagman and Pichay based on the alleged undue delegation of legislative powers, the pronouncements did not in any way alter the recommendatory nature of the GCG authority. (Decision, pp. 31-39)
ENABLING LAW NEEDED
The biggest legal issue cited by DBP in its opposition is that since the two state-owned banks were created by acts of Congress, the merger requires an enabling law, said Tiñga a former law dean, congressman and jurist who served as associate justice of the Supreme Court.
The paper also noted apparent conflicts of interest involving Diokno, the primary proponent of the merger. As Finance secretary, Diokno is an ex-officio member of GCG to which the merger proposal was submitted. Also, he is the ex-officio chairman of LBP and will remain so after LBP becomes the surviving “superbank” following the merger. On top of that, Diokno, who was governor of the Bangko Sentral ng Pilipinas (BSP) before his appointment to the Cabinet, is a member of the Monetary Board of the BSP which regulates banking in the country.
The DBP position paper said there is no convincing justification or compelling need for the DBP and LBP to be merged. It said the proposed merger, with its far-reaching economic and social costs, should not be railroaded. Instead, it should only be pursued “after painstaking study and evaluation of all economic and legal factors involved and in consultation with stakeholders as well as with financing and banking experts.”
BIGGER NOT ALWAYS BETTER
The other points cited by the DBP position paper:
- DBP and Land Bank were created by law with different mandates. DBP’s mandate is to develop industry; LBP’s is to develop agriculture. The union of two institutions created to serve different mandates may only result in the dilution of their respective missions and focus.
- Bigger is not always better and stronger. The merged bank may become “too big to fail, too big to save.” The concentration of risks can leave the superbank more vulnerable to financial market bubbles and cyberattacks.
- Contrary to Diokno’s projections, the combined branches of the two banks will result in a network of the same size and reach.
- While the merged bank may become the largest bank in the country in terms of assets and deposit size, it will still suffer from capital shortage, bad loans, and lazy banking.
- Without a plan of integration, there is only consolidation of assets and LBP as the surviving entity will just have the same strengths and weaknesses pre-merger; the two banks will be truly complementary of each other’s strengths and weaknesses if they are to remain separate and independent.
- Having all financial resources of the National Government, its agencies, GOCCs, government instrumentalities and local government units in one official depository bank may be more perilous than beneficial for the country. Indeed, the conventional wisdom warns against “putting all the eggs in one basket.”
SPECIALIZED BANKS
- The biggest banks in the world are not state-owned. In fact, the best practice in Southeast Asia is to have specialized development banks.
- None of Secretary Diokno’s justifications for the merger qualifies under the specific standards of RA 10149, the GOCC Governance Act of 2011, which exclusively enumerates the standards by which it may reorganize, merge, streamline, abolish, or privatize GOCCs.
- The resulting monolithic government bank may violate the Philippine Competition Act and the National Competition Policy, which are designed to foster a level playing field between public and private businesses and poses a grave threat to private capital as it can venture into commercial banking with a substantial advantage of access to funds as the official depository bank of the government.
- If merger is inevitable, the DBP, with its richer legacy, more extensive experience and expertise and better track record in development financing, is more deserving to be the surviving bank.
