The chairman of state-run Development Bank of the Philippines on Tuesday described the study that recommended its merger with Land Bank of the Philippines as “legally erroneous”, saying it was done with inordinate haste and encroached on the mandate of the Office of the Solicitor General and the Office of the Government Corporate Counsel.
The study, conducted by the Governance Commission for GOCCs in less than three weeks, concluded that President Ferdinand Marcos Jr. could implement the merger of the two Congress-created state banks without the need for legislative action.
A position paper presented by DBP chairman Dante Tinga, a former Supreme Court associate justice, to DBP employees on May 2 and released to the media on Tuesday 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.
The paper said this is covered by the Administrative Code of 1987 and Republic Act No. 2327 as amended by RA 6000.
It said the merger proposed by Finance Secretary Benjamin Diokno was strongly opposed by officials and employees of the DBP, most of whom would lose their jobs if the merger would push through, with LandBank as the surviving bank.
“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 better surviving bank,” the paper said.
The paper said the legal study by the GCG in interpreting its own Charter is a “self-serving declaration” favorable to its interest and is “not admissible as proof of the facts asserted.”
Diokno said, however, the Supreme Court upheld the authority of GCG to merge GOCCs. He said the proposed LBP-DBP merger is consistent with the principle of sound fiscal management, which the Department of Finance upholds to the highest degree.
“Contrary to the claim that the merger is a ‘dangerous experiment,’ the proposal is the result of a careful analysis of the costs and benefits of this merger, based on solid financial and economic evidence,” Diokno said.
“The Supreme Court has already upheld the authority of the Governance Commission for GOCCs to merge GOCCs in its Lagman v. Executive Secretary ruling upon finding that it is to the best interest of the state,” he said.
Diokno said the merger would create a bigger and stronger bank to better serve the country’s development needs. The LBP will be the surviving entity with its much higher authorized capital stock of P800 billion, compared to DBP’s P35 billion and overall stronger financial position.
Tinga said the GCG’s “legal 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 the lawyers of the government together with its units and GOCCs, respectively.
It said 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 even in the absence of enabling legislation.
It said that on the authority of the CG 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.
The bank said 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.
Tinga said the biggest legal issue cited by DBP in the opposition is that since the two state-owned banks were created by acts of Congress, the merger requires an enabling law. Tiñga is a former law dean, congressman and jurist who served as Associate Justice of the Supreme Court.
The paper also cited apparent conflicts of interest involving Diokno, the primary proponent of the merger.
It said that as Department of Finance secretary, Diokno is an ex-officio member of GCG to which the merger proposal was submitted. He is the ex-officio chairman of LBP and will remain so after LBP becomes the surviving “superbank” following the merger, it said.
The paper said Diokno, who was governor of the Bangko Sentral ng Pilipinas 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.”
The DBP position paper further said the two banks were created by law with different mandates: DBP’s mandate is to develop industry while LBP’s is to develop agriculture. The paper said 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,” it said.
It said contrary to Diokno’s projections, the combined branches of the two banks would 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 would still suffer from capital shortage, bad loans and lazy banking, it said.
“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,” it said.
“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,” it said.
DBP said it is prepared to work with Congress and to participate and provide unequivocal support to any Congressional inquiry that may be undertaken concerning the proposed merger with LandBank.