Government-controlled Land Bank of the Philippines (Landbank) and Development Bank of the Philippines (DBP) are asking the Bangko Sentral ng Pilipinas (BSP) for "regulatory relief" as seeder-funders of the Marcos administration’s Maharlika Investment Fund (MIF).

As investors in a sovereign wealth fund, Landbank and DBP could breach capital ceilings imposed by the BSP in terms of bank investments and which could affect their capital base. 

BSP Governor Eli M. Remolona Jr. has confirmed on Wednesday, Oct. 11, that the two banks have asked the Monetary Board, BSP’s policy-making arm, for the reprieve.

However, he said that for now, even after injecting a combined P75 billion in the MIF for the Maharlika Investment Corp. (MIC) to mobilize the funding later, Remolona said both banks are still in compliance with the required capital.

“In principle, we can provide forbearance which means (to) allow them not to comply for a period of time. This is what’s done elsewhere but they will be expected to comply at some point. Forbearance is only temporary,” he said in a press chat on Wednesday. 

Forbearance in banking simply means giving a bank enough time to repay loans or a concession for borrowers. 

“They are providing essentially capital which reduces their equity which may put them non-compliant with our capital requirements,” said Remolona, explaining the impact of the two banks’ funding of the MIF. “That’s mainly the form of relief they want,” he added. 

BSP Director Maria Cynthia M. Sison of the Supervisory Policy and Research Department said Landbank and DBP with their current capital base remains compliant with BSP requirements.  

But, they are asking for regulatory reprieve anyway because “they don’t want their capital position to decline substantially because of the (MIF) but they will still comply,” she said. 

If or when BSP grants both banks forbearance, Sison said they will have to disclose that they are under regulatory forbearance. “(This is) so investors would know that they are in that situation,” she said. 

Based on BSP regulation, all investments of banks, be it allied or non-allied, will have a 100 percent charge on a bank’s capital. This means that investment will be deducted from the bank’s capital when they compute the capital adequacy ratio.

Meanwhile, when asked about BSP’s role in the proposed merger of Landbank and DBP, Remolona said the central bank is not part of the discussion, at this point.

The current administration has been pushing to merge the two government banks. This was before they are mandated to seed-fund MIF with P50 billion as in the case of Landbank, and P25 billion from DBP.

However, Remolona said that once the two state banks have decided to merge, then the BSP will come in as this will require a new banking license for the surviving bank which is Landbank.

Landbank and DBP remitted the required P75 billion in mid-September. Both banks deposited the required MIC contributions ahead of the Sept. 17 deadline set by Republic Act No.11954, or the Maharlika Investment Fund Act of 2022.

Based on the MIF law which was approved July 18 this year, the National Government, DBP and Landbank are mandated to provide the initial capital of the MIC.

The NG contribution is P50 billion from the BSP dividends.