Two recent developments in the financial sector, when considered together, present a troubling prospect resulting from the reckless practice of extracting funds from state financial institutions.

The Development Bank of the Philippines (DBP) sought from the Bangko Sentral ng Pilipinas an extension of regulatory relief for the entire year.

In effect, DBP is asking for exemption from the strict rules the BSP imposes on banks to remain liquid.

It attempted to downplay suggestions it was in financial distress, stating that it remained well-capitalized despite its P25-billion capital contribution to the Maharlika Investment Fund.

Nonetheless, the bank is also asking to forego remitting dividends to the government this year “to build up its capital.”

DBP president and CEO Michael de Jesus stated that the one-year regulatory relief is intended “for comfort.”

De Jesus said the DBP is capable of meeting the minimum capital ratios based on its year-ago performance.

DBP’s capital adequacy ratio as of November 2024 stood at 14.78 percent, above the Bangko Sentral ng Pilipinas’ minimum requirement of 10 percent, he assured.

“We will meet the minimum capital ratios this year but we want to exceed them over time,” De Jesus said.

The International Monetary Fund (IMF), in a recent report, urged the DBP and Land Bank of the Philippines to recapitalize after both infused P75 billion into the MIF, the country’s first sovereign wealth fund.

Financial experts consider the IMF plea a veiled warning of the effect of the extraction of funds from the two government banks.

DBP said it also banking on the speedy passage of its new charter which will allow it to raise capital in various ways, including through an initial public offering (IPO).

The state deposit insurer then indirectly admitted having remitted, thus far, P107 billion of the P117 billion it is being asked to shell out as excess funds through a Department of Finance (DoF) directive.

The admission was made indirectly through a statement of the DoF, its parent agency, saying that bank depositors are guaranteed “continued relief from the PDIC despite its P107.23-billion remittance to the national government.”

A veteran banker suggested that Finance Secretary Ralph Recto, who has been implicated in the alleged conspiracy to siphon funds from government-owned and -controlled corporations, may have been compelled to issue the statement due to mounting concerns over the backlash from the PDIC’s surrender of its funds.

The amount was deducted from the deposit insurance fund (DIF) which is where PDIC draws money to insure P3.511 trillion in bank deposits.

With the amount that was transferred to the National Treasury, the DIF is now shaved to the lowest end of the limit at around 5.5 percent of total deposits from 8.8 percent in 2023, according to the banker source.

PDIC president Roberto Tan said “The DIF continues to be maintained within the target level set by the PDIC board based on international best practices.”

The growing worry, however, is if a major bank, say DBP, goes under, PDIC’s capability to protect depositors may have been impaired.

PDIC transferred P107.23-billion to the National Treasury in compliance with the Congress-approved General Appropriations Act of 2024.

In that budget was a provision that gave the Department of Finance the power — that used to be reserved for the President — to order state firms to yield their “excess funds” to the state coffers.

The permission in the budget for DoF to sweep the funds of GOCCs was a clever attempt to circumvent a requirement in the 2015 Supreme Court (SC) ruling against the Disbursement Acceleration Program (DAP).

The SC in its decision then said it “declares void the use of unprogrammed funds despite the absence of a certification by the National Treasurer that the revenue collections exceeded the revenue targets for non-compliance with the conditions provided in the relevant General Appropriations Acts.”

The surrendered amounts are meant to bankroll unprogrammed items in the national budget which are regular projects shelved to make way for pork barrel deals.

The racket of manipulating public funds is about to blow up in the faces of the greed-driven perpetrators.