The International Monetary Fund (IMF) has called on the government to prioritize restoring the capital of state-run banks Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) after their significant contributions to the Maharlika Investment Corp. (MIC).
The IMF stressed the urgency of this move to maintain the stability of the Philippine financial system and ensure the banks exit regulatory relief measures promptly.
“Implementing capital restoration plans for two state-owned banks following their contribution to the MIC’s start-up capital and exiting regulatory relief as soon as possible is important,” the IMF said in a recent country report.
Landbank and DBP collectively contributed PHP 75 billion, forming the majority of the PHP 125-billion initial capitalization of the MIC, the country’s newly formed sovereign wealth fund.
Under the law establishing the MIC, Landbank and DBP were mandated to contribute PHP 50 billion and PHP 25 billion, respectively, while the remaining PHP 50 billion came from various government sources, including dividends from the Bangko Sentral ng Pilipinas (BSP), privatization proceeds, and royalties.
The IMF cautioned against undermining the banks’ financial health, stating, “While the establishment of the MIC can help address the country’s investment needs, it should not come at the cost of a resilient financial system, sound regulatory framework, and level-playing-field.”
The BSP had earlier granted temporary regulatory relief to both banks, allowing them to operate below the minimum capital requirements for up to three years.
Landbank president and CEO Lynette Ortiz and DBP president and CEO Michael de Jesus confirmed that neither bank plans to seek an extension of this regulatory relief.
Both banks are now pursuing strategies to rebuild their capital, including possibly withholding dividend payments to the national government.
The IMF noted that MIC’s investments, which focus on infrastructure and emerging trends like renewable energy, could address key economic challenges.
However, critics of the MIC have argued that the banks’ contributions could have been better allocated to agricultural development and rural initiatives aligned with their mandates.
The IMF also highlighted the challenges in the energy sector, emphasizing how the MIC’s strategic investments could alleviate market inefficiencies and accelerate growth in renewable energy by 2024.
