Adverse audit observations noted by the Commission on Audit (COA) seemed to support President Rodrigo Duterte’s misgivings about the Land Bank of the Philippines (LBP) which he conveyed in his State of the Nation Address on Monday.
In the 2018 annual audit report (AAR) recently released by COA, auditors noted that LBP’s credit card receivables account amounting to P401.92 million as of December 31, 2019.
In the executive summary of the audit report, COA also drew attention to the Financial Statement indicating that the LBP’s Fair Value Through Other Comprehensive Income/Available-for-sale investments account included undelivered 3,366,800 Meralco shares.
“Likewise corresponding cash dividends earned amounting to P403.481 million and P358.446 million as at December 31, 2018 and 2017, respectively and property dividends of 9,488,394 shares of stock in Rockwell Land Corporation were still unpaid to LBP,” the audit agency said.
In his SONA, Duterte scolded the LBP, alleging that it had been focusing too much on commercial operations. As such, the President said the government bank had failed to help the farmers and fisherfolk it was meant to primarily help.
“I will give you until the end of July to give me a plan or else I will ask Congress to reconfigure you or whatnot… if there is no viable plan for the farmer then it is all commercial transaction, I plan to abolish it,” said the chief executive.
The AAR revealed that audit suspensions and disallowances have reached P2,871,717,704.84 that included P2.81 billion in unauthorized disbursement involving Priority Development Assistance Fund of congressional members and the Development Acceleration Program of the Aquino administration.
“The other suspensions and disallowances are payments of benefits and allowances of LBP Board of Directors, officers and employees which were not in accordance with existing laws, rules and regulations,” the audit report stated.
State auditors also took notice of the P164.469 million in past due loans under the Livelihood Loan System and the LBP Mobile Loan Saver that remained uncollected “due to non-compliance with the remedial actions for past due accounts.”
The LBP was warned that this exposed the bank to “possible credit losses.”
“Non-recovery of the loan could also affect the financial performance and deprives the bank of additional funds and the income that could be generated therefrom, had it been timely collected,” COA said.
On its credit card operations, COA disclosed that there have been delays in the recording of payments of Mastercard and VISA amounting to P50.043 million.
This and other operational lapses, the audit agency said, affected the faithful representation of the Credit Card Receivables amounting to P401.929 million as of December 31, 2018 which could not be ascertained due to the General Ledger and Subsidiary Ledger balances aggregating P734.971 million.
In response to the audit finding, the LBP management admitted delays in the reconciliation reports, saying that this was due to the “migration of VISA credit card to MasterCarBusiness Integrated and its subsequent upgrade to Mastercard Integrated.”
FAST FACTS: What you should know about Landbank
The President threatened to shut down the bank’s operations. “You are supposed to finance agricultural enterprises and endeavors. Bakit wala? (Why is there none?) Why can’t you just buy a few wagons or whatever? Go to the countryside and ask the people if there are cooperatives, tulungan ninyo (help them) to form one,” he said in his speech.
Since its creation in 1963, Landbank has emerged as one of the biggest banks in the country. Here are some fast facts about the government bank.
1. Landbank’s creation and primary function
Landbank was formed under Republic Act 3844 or the Agricultural Land Reform Code in August 1963. The main function of the bank is to be the financing agency for the government’s acquisition of agricultural estates for division and resale to small landholders, as well as the purchase of the land-holding by the agricultural lessee.
2. It was eventually granted universal banking powers in 1973
Ten years after its creation, Landbank was granted universal or expanded commercial banking powers through Presidential Decree 251 to remedy the bank’s “deficient and inadequate” capitalization and organization structure. Former president Ferdinand Marcos cited the bank’s failure to meet the requirements of the agrarian reform program, so he included granting short-, medium- and long-term loans to agricultural, industrial, home-building projects, and other productive enterprises to Landbank’s powers.
In 1977, the bank underwent a major reorganization and formed 3 main sectors: agrarian, banking, and operations. Today, Landbank’s role is not limited to the provision of credit assistance to farmers and fisherfolk. It is also an implementing agency of the Comprehensive Agrarian Reform Program, as well as an official depository of government funds.
As of July 2019, Landbank has a total of 401 branches and 2,046 automated teller machines nationwide.
3. Landbank now belongs to the top 10 universal/commercial banks in the Philippines
In Duterte’s 4th SONA, in jest, he called Landbank the “number one” commercial bank in the Philippines. “You know, you are called Land Bank but you are now the number one commercial bank in the Philippines. What the heck is happening to you?” Duterte said a little over the one-hour-and-20-minute mark into his speech.
While Landbank is not the leading bank in the Philippines, based on 5 metrics, it is included in the Bangko Sentral ng Pilipinas’ (BSP) top 10 rankings of universal/commercial banks as of March 2019: assets, stockholder’s equity, deposits, loans, and return on equity.
Landbank is the 3rd biggest universal/commercial bank with total assets of P1.9 trillion. Its stockholder’s equity – the amount of assets the bank has minus its liabilities – stands at P136.5 billion, while its total deposits as of March 2019 reached P1.7 trillion – second to the Sy family-owned BDO Unibank’s P2.3 trillion. In the same period, Landbank also had P850.8 billion in its total loans and receivables portfolio.
Meanwhile, the bank’s return on equity ratio stands at 13.25% – only the 8th highest out of the 45 universal/commercial banks listed by the BSP. Return on equity is a known measure of profitability and of how well the company generates income growth by utilizing the equity investments of its shareholders.
4. The Duterte administration stopped the Landbank-Development Bank of the Philippines merger
Former president Benigno “Noynoy” Aquino III signed and approved the proposed merger of the two government banks in February 2016 through Executive Order No. 198. Under this EO, Landbank was supposed to be the surviving entity between the two banks.
EO 198’s goal was to increase Landbank’s capital stock to P200 billion from P25 billion and to strengthen the financial capabilities of both banks while avoiding unnecessary overlaps of their respective functions.
However, the new administration stopped the merger in September 2016, led by the Governance Commission for Government-Owned and -Controlled Corporations (GCG). Finance Secretary Carlos Dominguez III pointed out that the two banks serve different functions: Landbank for the agriculture sector, and DBP, for industry.
5. Landbank’s loan portfolio and its compliance with the Agri-Agra Law
Under the Republic Act 10000 or the Agri-Agra Reform Credit Act, banks are mandated to allot 25% of their loan portfolios for agriculture and fisheries – 10% for agrarian reform projects and 15% for agriculture.
Landbank’s First Vice President for Corporate Affairs Catherine Rowena Villanueva said the combined loans extended to the agriculture sector and the its mandated sector, which includes agrarian reform beneficiaries and their associations as well as small farmers, reached 27.45% of the bank’s total loan portfolio of P799.64 billion as of June 30, 2019.
Data from BSP show that the compliance of universal and commercial banks are way below the minimum amount required, with total compliance for agrarian reform credit only reaching 1.01% of its minimum required amount as of end-March 2019, and only 13.27% for agricultural credit.
But Villanueva said Landbank remains to be the biggest lender to the sector. “While growth of the agriculture sector remained stagnant for the past 10 years, averaging only 1.11%, Landbank’s loans to the sector continued to increase at an average of 10.94%,” she added.
Economist and former socioeconomic planning secretary Cielito Habito argued that Duterte’s scolding is “misplaced” since Landbank is expected to be profitable just like other commercial banks and is still subject to the same rules imposed by the BSP.
“Like it or not, lending in an agricultural sector dominated by smallholders is always risky business anywhere, and even more so in a calamity-prone country like ours. That’s why commercial banks prefer to pay the fine for not complying with the Agri-Agra law, rather than lend the mandated amounts of loans to small farmers and agrarian reform beneficiaries,” he wrote.
Landbank also reported in the 1st quarter of 2019 that its loans to the agricultural sector grew 12% year-on-year to P13 billion. This covers 128,496 small farmers and fishermen.
6. Landbank’s actions to Duterte’s threats
Duterte has been urging Landbank to focus more on the farmers and fishermen even before his 4th SONA. He earlier threatened to look into the finances of the bank in 2018.
A day after President Duterte threatened to abolish Landbank, the bank said it is submitting a detailed report of its plans and programs for farmers. The bank also turned over 354,783 hectares of land to the Department of Agrarian Reform on July 25.
Prior to this, the bank had committed in December 2016 to loan P115 billion to small farmers and fishermen by 2022 – which triples the P37.9 billion recorded that year. – Rappler.com