IMF: Capital restoration needed for Landbank, DBP

After Maharlika contribution

MANILA, Philippines — The International Monetary Fund (IMF) believes it is crucial to restore the capital for the two state-owned banks that contributed to the startup capital of the Maharlika Investment Corp. (MIC), and is urging that these institutions exit their regulatory relief measures as soon as possible.

The IMF’s recommendation to the Bangko Sentral ng Pilipinas (BSP) aims to ensure the stability of the country’s financial system, with a focus on maintaining a resilient banking sector and a sound regulatory framework.

“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.

“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,” it said.

In September 2023, the Land Bank of the Philippines and the Development Bank of the Philippines remitted its contributions to the MIC.

The MIC had an authorized capital stock of P500 billion. Under the law, Landbank and the national government were mandated to initially contribute P50 billion each and DBP, P25 billion.

The P50-billion government share would be sourced from central bank dividends, income share of the Philippine Amusement and Gaming Corp., proceeds from privatization of government assets, and other sources such as royalties, special assessments for a period of five years.

The BSP previously acknowledged that the significant capital contributions made by Landbank and DBP – totaling P75 billion – had strained their liquidity positions, which might make them noncompliant with regulatory capital requirements.

Earlier in May, Landbank president and CEO Lynette Ortiz said the state-run bank does not intend to request an extension of the regulatory relief provided by the BSP.

Ortiz said that the temporary measure, which may last for up to two to three years, allows both Landbank and DBP to temporarily deviate from the BSP’s minimum capital requirements.

Likewise, DBP president and CEO Micheal de Jesus had said that an extension of the relief “is not on the table.”

The MIC is the investment body responsible for the overall governance and management of the Maharlika Investment Fund (MIF), the country’s first sovereign wealth fund.

The MIC is tasked to identify financially and commercially viable infrastructure projects to invest in and will formulate investment strategies covering emerging megatrends such as environment, social and governance, digitalization and health care.

In its assessment of the Philippine economy, the IMF also turned its attention to the energy sector, noting the structural challenges faced by the country’s transmission grid and grid connection, which push up the cost of power.

“These impediments are significantly slowing growth in the renewable energy generation sector. (Authorities) hope that strategic investments by the recently created MIC in the energy sector, set to begin by end-2024, will help alleviate some of the existing market failures,” the IMF said.