Incoming House Speaker Martin Romualdez has filed a bill appropriating P10 billion as additional capital to government-owned banks, Landbank of the Philippines (Landbank) and Development Bank of the Philippines (DBP), with the sole purpose of helping small businesses recover from the effects of the coronavirus disease-19 (COVID-19) pandemic.
Under House Bill No. 1, “An Act providing for government financial institutions unified initiatives to distressed enterprises for economic recovery (GUIDE),” P7.5 billion will be allocated to Landbank and DBP will get the remaining P2.5 billion.
The P10 billion will be “appropriated out of any funds actually available in the National Treasury of the Philippines.”
The bill seeks to “strengthen the capacity of DBP and LBP to provide the needed assistance to micro, small, and medium enterprises (MSMEs), and other strategically important companies (SICs).”
“To this end, the government financial institutions are mandated to expand their credit programs in order to assist MSMEs to meet their liquidity needs. In particular, the LBP and DBP are mandated to expand their credit and rediscounting facilities to affected MSMEs in the agriculture, infrastructure, manufacturing, and service industries,” Romualdez said in the bill’s explanatory note.
The bill is co-authored by Romualdez’s wife Rep. Yedda Marie Romualdez (PL, Tingog) and Rep. Jude Acidre, also of Tingog and presidential son Ilocos Norte Rep. Ferdinand Alexander Marcos.
The proposed law authorizes the two government banks to use the P10 billion additional capital to create a special holding company (SHC) “to further reinvigorate” MSMEs and “strategically important industries” or SICs heavily affected by the COVID-19 pandemic, including companies in agriculture, construction, education, food production, health care, infrastructure, socialized housing, manufacturing, power and energy, product distribution, retailing, services, tourism and hospitality, transportation and logistics, and water and sanitation.
While Land Bank and DBP may invite the private sector to invest in the envisioned holding company, the two state banks would maintain majority ownership of the special firm until they have recovered their investment “to ensure that the policies and objectives under the proposed bill are effectively carried out.”
The SHC is intended to be “a major player in the financial and capital markets by providing aid to strategically important companies with solvency/liquidity issues brought about by pandemic.”
“For this purpose, the special holding company shall be authorized to invest or place funds in equity, execute convertible loans or purchase convertible bonds and/or other securities, in SICs, as well as to incorporate subsidiaries,” the bill said.
To ensure that such investments are properly utilized and SICs are successfully rehabilitated, the bill imposes restrictions on an SIC receiving funds from an SHC by requiring that the number of employees is not reduced beyond a certain level determined by the SHC, “limiting its ability to declare dividends, restricting the increase in salary, separation and retirement pay, and other benefits of the board and its senior officers, and ensuring that investments of LBP and DBP are not diluted and time-bound with a definite exit mechanism.”
The planned holding company is to be governed by a board of directors headed by the Secretary of Finance as chairperson, with the president of Land Bank, DBP, SHC, two independent directors, and three directors representing private sector investors as members.
The bill also grants certain tax exemptions to the two government banks and their holding company.
The measure creates a joint congressional oversight committee composed of five House members and five senators to oversee its implementation.
An MSME “refers to any business activity or enterprise engaged in industry, agribusiness and/or services, whether single proprietorship, cooperative, partnership or corporation whose total assets, inclusive of those arising from loans but exclusive of the land on which the particular business entity’s office, plant and equipment are situated, must have value falling under the following categories: micro, not more than P3 million; small, P3 million to P15 million; and medium, P15 million to P100 million.”
The GUIDE bill also incorporates amendments to the charter of DBP, foremost of which is the increase of the bank’s capital stock from P35 billion to P100 billion, fully subscribed by the national government, divided into one billion shares of P100 each to be fully subscribed by the national government.
This bill was filed by Rep. Junie E. Cua, Chairperson of the Committee on Banks and Financial Intermediaries, during the 18th Congress. It was approved on 3rd Reading and was transmitted to the Senate.
