By Jochebed B. Gonzales,
Senior Researcher

WHILE competition in the banking sector is just starting to heat up, the Development Bank of the Philippines (DBP), may be finding itself in a strategic position at a time the government will need lots of funding for its massive infrastructure program.

Late last year, the government formally dropped the plan of the previous administration to merge DBP and another government-owned bank, the Land Bank of the Philippines (Landbank). Instead, the current administration is looking to revamp DBP into an infrastructure bank.

At the same time, DBP, as a universal bank, is also going as far as establishing branches in areas that are either unbanked or underbanked, but have potential for growth. Furthermore, it has partnered with some in the private sector in employing technologies that could widen DBP’s reach even to micro-, small- and medium enterprises (MSMEs) such as mobile, Internet and electronic banking.

Last January, Cecilia C. Borromeo was elected by DBP’s board of directors as its new president and chief executive officer after 27 years at Landbank, where she was executive vice president and officer-in-charge prior to her transfer.

For this quarter, BusinessWorld interviewed Ms. Borromeo to give us a picture of what DBP is doing right now, its accomplishments and plans moving forward.

You were with Landbank for 27 years. How was your job then and now, from being a veteran especially in agribusiness, to heading DBP, which can possibly become an infrastructure bank?

My experience with Landbank is not that different from what I have been doing here in DBP.  Landbank’s portfolio, after all, is very similar to DBP and includes small to large complex projects. Also, the rules of credit management in DBP and Landbank are practically the same — as long as risks are identified, the appropriate credit facilities can be provided to different types of clients.

My marching order is to help concretize the development vision of the National Government for the country. Taking my cue from the government’s pronouncement of ushering in a “golden age of infrastructure” for the country, my vision for DBP is to transform it primarily into an infrastructure financing bank. The challenges encompass those of helping build the infrastructure that our country sorely needs as a launching pad for greater economic growth. Ultimately, economic growth will translate to the creation of more jobs and opportunities for our people.

How are the Bank’s financial operations during the quarter?
We have been performing very well this year. As of end of September 2017, our net income is at P3.98 billion, or an increment of 30% from the P3.07 billion for the same period last year.  This can be attributed to the increase in interest income on loans or 19% in view of the growth in portfolio.

Total assets have increased to P557.84 billion from P492.54 billion, or a 13.26% growth mainly due to the growth in loans and deposit levels.  Our deposits have jumped by 15% from P319.39 billion to P367.32 billion.

Our capital adequacy ratio is at a healthy 15.5%.

We’ve also done a solid job of managing our costs.

With around 80% of the loan portfolio allocated for infrastructure projects, how do you find the risks and returns for this segment?
Let me clarify first that we’re not mandated to allocate 80% of our loan portfolio for infra projects.

I believe we’ve gained enough knowledge in identifying risk and reward areas with the Bank’s many years of experience in lending to infrastructure projects.  This includes power projects, farm to market roads, toll roads, ports and airports, vessels, water and electricity distribution utilities, power plants at the national and local government unit levels.

We also have the experience in packaging the appropriate credit programs and facilities and in keeping a high-quality portfolio that can generate a steady stream of income for the Bank.

As new types of project structures are developed by government and private sector participants in the BBB program, e.g. hybrid PPP (public-private partnerships), the Bank is prepared to meet the challenges of financing them.

Another possible aspect of being an infrastructure bank is in the funding side; DBP may look into less traditional sources or means of financing infra projects such as bonds.

How is DBP adjusting to the changing needs of the market? What trend has been observed among your clients in the last 10 to 20 years?
We’ve done a creditable job of adapting to the changing needs of the market especially this year. We’ve been very active in launching nontraditional channels like mobile banking and Internet banking.  In fact, we’ve partnered with the Bureau of Internal Revenue (BIR) recently to launch the PayTax Online portal to enable individuals to pay taxes online.

We’ve also launched credit and debit cards for Pag-IBIG (Home Development Mutual Fund) members and SSS (Social Security System) employees.

But there are still a lot of things to be done. We need to put up more branches to serve the unbanked, including clients in the island-provinces.

In news reports, government is looking to make DBP into an infrastructure bank amid the drive for its “Build, Build, Build” program. How will this be different from the Bank’s current mandate as a development bank?
Financing infrastructure projects isn’t something new to DBP. In DBP’s umbrella program — the Connecting Rural Urban Intermodal Systems Efficiency (CRUISE) Program — aims to support investments that improve the country’s primary transport infrastructure and logistics facilities to provide affordable, reliable and safe mass transport systems; support the efficient movement of basic commodities; bring down the costs of goods and services; and introduce sustainable storage, handling and distribution technologies.

But I think there must be a metric to measure our performance as an infra bank. Of course, loans will be the main metric but it doesn’t need to be the only way to measure our performance. Other metrics may be on the funding side; financing the highest impact projects; capability of people; complementation with subsidiaries so that all subs also reflect in their operations the infra bank mandate.

How did competition in the local banking scene change following the entry of more foreign banks? Would you say that the Bank was affected by this development?
Consolidation among local banks is becoming more apparent with the entry of more foreign banks.  Size matters, especially in this very competitive field.

However, in the case of DBP, I believe that the foreign banks cater more to their nationals.  As such, DBP is not really fazed by competition as the local borrowers will still approach their local banks. And being a government bank, DBP has the solid reputation and track record behind it.  Being a development financing institution is also a niche in itself.

What’s your position (or the Bank’s position) on the move for further integration among the ASEAN’s (Association of Southeast Asian Nations) financial sectors? How will the Bank look to benefit from this?
Financial integration is aimed at facilitating intra-ASEAN trade and investment by increasing the role of ASEAN indigenous banks and having a more integrated insurance and capital markets. These will be supported by a robust financial market infrastructure that is safe, cost-efficient and more connected.

There is huge opportunity for the Philippines’ trade and investment programs with an ASEAN market of over 1.9 billion people.

The regional integration will offer a lot of opportunities for Philippine banks as well as regional banks. First, local banks will gain greater access to the ASEAN financial market which has more than 600 million people.  There’s the opportunity to capture the high amount of savings in the ASEAN. Of course, there is the concern that more foreign banks will threaten local banks, but this should also challenge Philippine banks to improve themselves.

The introduction of new technologies and best practices should push local banks to work double time in providing the best products and services to Filipinos.

What is DBP’s comparative advantage compared to the big private (local and foreign) banks? How do you see DBP’s role in an ever-changing financial landscape where bank consolidations occur?
I think we have four advantages over other big private banks.

First, DBP has a clear mandate — to support the infrastructure buildup of the government as well as to assist critical industries and sectors such as SMEs. As is clearly stated in the Revised Charter of DBP, the primary purposes of the Bank shall be to provide banking services principally to service the medium and long-term needs of agricultural and industrial enterprises, particularly in the countryside and preferably for small and medium-scale enterprises.

Second, DBP benefits from being a government bank. People trust us because one, we’re stable and two, we’re part of the government.

Third, we have access to government deposits. In fact, we just increased our government deposits from P219 billion in the third quarter of 2016 to P271 billion in the third quarter.

And fourth, we have access to Official Development Assistance Funds (ODAs) which are not readily available in the market.

DBP is the bank of choice for our many development partners.  In fact, we can say that DBP stands for Development by Partnership. We are a founding member of the Association of Development Financing Institutions in Asia and the Pacific.  DBP is a member of the World Federation of Development Financing Institutions. We engage in the active exchange of ideas with our international counterparts in the development financing field.

With moves towards regional integration for the banking sector, what steps have been taken (and are planning to be taken) to push forward the creation of an Islamic banking framework here?
BSP feels that the best way to move Islamic banking forward is to have appropriate legislation in place.  It has drafted a proposed law amending the [Al-Amanah Islamic Investment Bank of the Philippines’] charter and creating an Islamic banking system. The bill, which has been filed in the House of Representatives, aims to create an expanded Islamic banking system and address constraints including the issue on taxation. At present, a technical working group is coordinating with Congress on the passage of amendments to the Amanah charter.

What are your plans for 2018?
We will be adapting a new organizational structure — that will be the big change.  We have to keep on innovating our processes, enhancing our products, updating our policies, to transform DBP into one that is more responsive to the needs of our stakeholders.

Next year, we will grow the Bank’s loan portfolio and we will be quite aggressive and ambitious. We are looking at least 20% growth in loan portfolio.  Deposits will have to grow at almost the same rate as well. On the deposit-taking side, it will be a very challenging job for the branches because as we expand the deposit base, we also will reduce the average cost of our funds.

That’s quite a challenge but I find the DBP officers and personnel, in general, creative and innovative, and more importantly, they know their customers. They are a very dedicated work force and I’m pretty sure they will rise up to the challenge and increase the balance sheet of the Bank.

How do you see DBP 10 years from now?
By the next decade, we should have doubled our size and profits.  We are targeting to become a trillion-peso asset bank with minimum earnings of P10 billion.

As a bank, we have to be always competitive, bringing DBP at par with other industry players.  Especially as we are a state-owned bank, we have to continuously strive to surpass the performance yardsticks by which the market measures other financial institutions, while meeting the requirements and expectations of our main constituents and stakeholders. This complements our vision that by the end of 2022, on DBP’s 75th anniversary, we will have doubled our size and profits, to become a trillion peso-asset bank with minimum earnings of P10 billion.

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