Merging the Land Bank of the Philippines (LANDBANK) with the now defunct United Coconut Planters Bank (UCPB) allowed the Philippine Deposit Insurance Corp. (PDIC) to save tens of billions of pesos in potential losses.
This was revealed on Tuesday by Finance Secretary Carlos G. Dominguez who acknowledged the potential loss of some P87 billion were the merger a practical failure.
“Through the merger, we have reduced the risk of around 87 billion pesos in potential losses for the PDIC by putting the financially weak UCPB under the financially strong LANDBANK,” Dominguez said.
This relates to deposits by the national government in UCPB and loans extended by the Bangko Sentral ng Pilipinas (BSP) to help stop what has now proven inevitable, according to Gil Beltran, chief economist at the DOF.
The credit watchdog Fitch Ratings previously noted that UCPB presented a risk to the financially strong LANDBANK given that the privately-owned lender had non-performing loans of more than P22 billion going into the merger.
Such would “exacerbate asset quality pressures that LANDBANK already faces from the current economic slowdown,” it said.
Prior to the banks’ merger that became effective just three weeks earlier, LANDBANK reported NPLs averaging 3.44 percent or just under P30 billion of portfolio.