The Landbank of the Philippines building (Photo from its Facebook page)
MANILA, Philippines — The Land Bank of the Philippines (Landbank) was granted relief from remitting half of its annual net income to the national government for the seventh year after the state-run bank remitted its full contribution of P50 billion to the seed capital of the Maharlika Investment Fund (MIF) last month.
Under Executive Order No. 43 signed on Oct. 11, which Malacañang made public on Saturday, President Ferdinand Marcos Jr. slashed Landbank’s dividend rate from 50 percent to zero for 2022. The Landbank had a net income of P30.06 billion in 2022, higher than its P21.7 billion net earnings recorded in 2021.
Under Republic Act No. 7656, all government-owned and -controlled corporations (GOCCs) are required to declare and remit 50 percent of their annual net earnings to the national government.
But the same law allows the president, upon the recommendation of the finance secretary, to adjust the percentage of annual net earnings to be declared by a GOCC “in the interest of national economy and general welfare.”
According to Landbank’s 2021 annual report, it turned in a total of P46.1 billion in cash dividends from 1993 until 2018. The dividends remitted in a given year are for the earnings from the previous year.
Landbank’s net income has been increasing yearly from P13.58 billion in 2016 to P30 billion in 2022, except in 2020 when profits eased to P17.14 billion from P18.5 billion in 2019.
Landbank said it had remitted a “significant amount” of its capital as cash dividends to the government.
“However, to ensure a strong capital and compliance with regulatory capital requirements, [Landbank] requests for dividend relief or adjustment of dividend rates,” it added.
Thus, through edicts similar to EO 43, the chief executive has been granting dividend relief to Landbank since 2016.
Diokno recommendation
Landbank made zero remittances in 2016 and from 2018 to 2021 and only 10 percent in 2017.
In 2022, Landbank said it remitted a “special cash dividend” of P8.5 billion to the national government from its acquisition of United Coconut Planters Bank.EO 43 cites a recommendation from Finance Secretary Benjamin Diokno, who is also board chair of Landbank, for “downward adjustments” of the percentage of the dividends to be remitted by the bank.
The zero remittance is intended to support Landbank’s capital position, maintain its compliance with the capital adequacy requirements of the Bangko Sentral ng Pilipinas (BSP), and “expand its role in the economic recovery of industries adversely affected by the COVID-19 pandemic, in the interest of national economy and general welfare,” the EO said.
In December last year, Marcos issued Executive Order No. 8 adjusting the percentage of the 2021 net earnings to be declared by the Development Bank of the Philippines (DBP) from 50 percent to zero percent.
Back then, Diokno said there was “absolutely no link” between EO 8 and what was then still a potential contribution to the MIF as the Maharlika bill was still pending in Congress.
The reduction in the dividend remittances of Landbank and DBP was made “long before the MIF was conceived,” he said.
“The grant of dividend relief aims to provide DBP with a stronger capital base in support of its mandated developmental programs,” Diokno said.
Contributions
Landbank, which reported assets totaling P3.14 trillion last year, provided P50 billion while the DBP turned in P25 billion as their contributions to the MIF’s initial capital.
Under the law establishing the fund and the corporation that will manage it, the national government is also required to chip in another P50 billion, which will mainly come from BSP dividends.
The law said that for the first and second fiscal years, 100 percent of the BSP’s total declared dividends “shall be remitted to the national government for the capitalization of the MIC (Maharlika Investment Corp.)” in an amount that would not exceed P50 billion.
But the law also said the Monetary Board may recommend to the president the reduction of the BSP’s dividend contribution to the MIC “whenever economic conditions may warrant.”
EO 43 was issued as Landbank and DBP sought regulatory relief from the BSP’s capital requirements after they remitted their contributions to the MIF on Sept. 14.
Driver of development
According to the law signed by Marcos on July 18, the government shall establish the Maharlika fund “by investing national funds, and coordinating and strengthening the investment activities of the country’s top-performing financial institutions to promote economic growth and social development.”
In his speech after enacting Republic Act No. 11954, Marcos said the MIF was “designed to drive economic development.”
The Department of Finance earlier said that the fund was designed “to catalyze economic development and accelerate the country’s growth by optimizing the use of government financial assets.”
But opponents of the fund warned about possible misuse of the money. House Assistant Minority Leader Arlene Brosas said that the “economically unsound” law contained “serious flaws and legal loopholes” that may lead to mass corruption, graft, and misuse of public funds.
With at least P125 billion in national revenue in the form of dividends being funneled to the Maharlika fund, the government would not have such a huge amount that could be spent on more urgent projects and programs.
Out of circulation
George Barcelon, president of the Philippine Chamber of Commerce and Industry last month said that money had been “taken out of circulation” instead of being used in lending for productive activities in the case of Landbank and DBP, and for public services in the case of the money from the national government.
He said the MIC board members should have been appointed before the contributions from Landbank, DBP, and the BSP were remitted.
“Knowing who they are should precede any other concern,” Barcelon said.
A former bank official, who spoke on condition of anonymity, said the government and the bank could have opted for an “equity call” in which the money committed by Landbank need not be remitted in its entirety and that certain amounts would only be released whenever they are needed. This will allow the rest of the money to be used for other bank services until it is “called.”