Pundit: LandBank, DBP float will spur growth

A proposal from the Department of Finance, or DoF, for an initial public offering or IPO for both the Land Bank of the Philippines, or LandBank and the Development Bank of the Philippines, or DBP, could help expand both state institutions, financial markets analyst Jonathan Ravelas told DAILY TRIBUNE.

Ravelas said an IPO could attract more capital for the state banks while affording the public to gain awareness of their services.

“Being listed on a stock exchange increases visibility and awareness of the government bank among investors, analysts, and the general public, which can potentially attract more customers and investors,” he said.

Ravelas is a senior adviser at Reyes Tacandong and Co. and former BDO Unibank Inc.’s chief market strategist.

He was also named twice as one of the best forecasters by global economic analyst FocusEconomics.

Capital for growth

“An IPO can provide a government bank with access to a substantial amount of capital which can be used for growth initiatives, expansion plans, or to strengthen its financial position,” Ravelas added.

These statements came after DoF secretary Ralph Recto told officials of the Philippine Stock Exchange or PSE last week that he is “exploring” the banks’ public listing “to broaden the capital market.”

Recto also said this as part of his encouragement to the PSE to help mobilize the savings of Filipinos into passive income and other financial activities toward national economic growth.

The Daily Tribune reached out to the DOF and the two government banks for possibly more details about the IPO, but none of them was able to give a response as of the writing of this article.

LandBank provides funds mainly for the agriculture sector, while DBP lends funds also to businesses and government entities to develop infrastructure projects.

With the proposed IPO, Ravelas said the banks could better decide which various investment channels to tap to strengthen their cash flows.

“An IPO allows the government bank to establish a market value for its shares based on investor demand and market conditions, which can help in determining its worth and future fundraising activities,” he said.

“Public listing provides liquidity to existing shareholders, including the government, as they can sell their shares in the open market, thereby unlocking value and diversifying their investments,” he continued.

LandBank reported its assets as of end-2023 grew by 4.2 percent to P3.3 trillion, driven by deposits and incomes generated from loans and investments. This resulted in the bank’s P40.3-billion net income or 34 percent growth for the full period last year compared to the 2022 level.

Meanwhile, the latest data from the DBP show its net income for the first half of 2023 grew by 60 percent to P4.42 billion.

IPO barriers

However, Ravelas said that government banks must also continuously perform to the highest levels in various business aspects under changing economic conditions to keep the flow of capital contributions.

“Investor perception of the government bank’s financial health, management quality, and governance practices can significantly impact its IPO valuation and investor demand,” he cautioned.

“The success of an IPO can be influenced by market conditions, investor sentiment, and broader economic factors, which may not always be favorable, especially during periods of market volatility,” he added.

Aside from these, Ravelas said an IPO could limit the distribution of funds of the government banks to their core customer services due to additional regulatory duties.

“Publicly listed companies are subject to stringent regulatory requirements, including financial reporting, disclosure, and compliance with securities laws, which can increase administrative burden and costs,” he said.