DOF: GFIs can seek extended relief after Maharlika infusion

Government financial institutions Land Bank of the Philippines and Development Bank of the Philippines (DBP) will likely seek an extension of its regulatory relief following contributions to the country’s sovereign wealth fund.

“I think the relief is only good for one year,” Finance Secretary Ralph Recto told reporters.

“Will they ask for an extension? Possibly. But to me, it’s a non-issue,” he said.

In October 2023, President Marcos issued Executive Order (EO) 43 adjusting the dividend rate to be remitted by the Landbank to zero from the original 50 percent of its annual earnings in 2022.

Two months later, Marcos signed another executive order slashing DBP’s dividend rate to zero as well.

At the time, both banks sought regulatory relief from the Bangko Sentral ng Pilipinas following their contributions to the Maharlika Investment Fund (MIF) upon the recommendation of then finance chief Benjamin Diokno.

Landbank and DBP remitted P50 billion and P25 billion, respectively, as initial capital to the MIF.

Both EOs, however, are applicable to the 2022 financial performance only.

“The books of Landbank and DBP are both okay,” Recto said.

Both Landbank and DBP have yet to comment on the possible extension.

The BSP tracks the capital adequacy ratio (CAR) and common equity tier 1 ratio of banks to ensure that they are capable of absorbing a reasonable amount of financial risks and still comply with statutory capital levels.

Both capital ratios are essential as it indicates a bank’s financial strength and how well it can weather financial challenges.

A higher CAR also means a bank is more financially stable and secure.

As of end-2023, Landbank’s financial ratios remain at healthy levels, with CAR at 16.35 percent and common equity tier 1 at 15.46 percent, both well above the minimum requirements of the central bank.

In a commentary last month, Fitch Ratings said both banks may see a downgrade in their viability ratings if they cannot adequately replenish their capital buffers.

This amid lack of concrete plans to replenish their diminished loss absorption buffers. A viability rating indicates a bank’s standalone credit profiles.

Without the regulatory relief, the capital contributions would have shaved about 4.5 percentage points off DBP’s common equity tier 1 ratio and 3.6 percentage points off Landbank’s.

“This underpins our negative outlook on the banks’ capitalization scores, which we may revise down if the banks likely cannot adequately replenish their capital buffers in the near to medium term,” Fitch said.