How does a government-owned bank such as Land Bank manage to maintain its viability despite its politically driven mandate? The Land Bank is a universal bank1 owned by the Philippine government. The government established the Land Bank to provide financial services to a wide array of rural clients and to give special attention to promoting rural development, assisting small farmers, supporting rural infrastructure, and providing a variety of services to agrarian reform beneficiaries (ARBs). The Bank does this directly at the retail level and at the wholesale level through a variety of financial intermediaries, including rural banks, credit cooperatives, and a few thrift banks. The Bank’s performance is remarkable considering that it has survived for 40 years without requiring bailouts to avoid bankruptcy, and it continues to serve a large and diverse rural clientele. In contrast, most other government-owned agricultural/rural development banks around the world have experienced episodes of bankruptcy that have required massive government and donor bailouts. In the Philippines itself, moreover, the two other major government-owned banks both experienced costly bankruptcies during the past 15 years despite the fact that their missions are much less demanding. How does a government-owned bank such as Land Bank manage to maintain its viability despite its politically driven mandate? In order to draw lessons for policy makers, this microNOTE looks closely at the external and internal factors that have driven Land Bank’s successful performance.
June 2007 This publication was produced for review by the U.S. Agency for International Development. It was prepared by Salah Goss of DAI and is based upon the MicroReport written by Robert Vogel and Gilberto Llanto of the International Management and Communications Corporation.
A bank that offers investment services in addition to services related to savings and loans.
STRATEGIC THRUSTS AND PROGRAMS
Expansion and Diversification of Loan Portfolio. In the last five years, Land Bank focused its efforts on diversifying and expanding its loan portfolio within identified priority sectors, including farmers and fisherfolk, micro and small and medium-sized enterprises (SMEs), incomegenerating projects commonly known as livelihood projects, agribusiness, agriinfrastructure, and other agrirelated and environmental conservation projects. Thus, from a narrowly defined loan portfolio consisting of small farmers and fisherfolk, including ARBs, Land Bank has increased the share of these other sectors from 36 percent of its total portfolio in 2000 to 62 percent, amounting to 77 billion pesos ($1.4 billion), by the end of 2005. Lending to Small Farmers and Fisherfolk. The amount of loans Land Bank released to small farmers and fisherfolk through cooperatives and countryside financial institutions (CFIs) increased at a modest rate from 13 billion pesos ($294 million) in 2000 to about 17 billion ($296 million) in 2004. Outstanding loans to this sector comprised 23 percent of loans to priority sectors and about 12 percent of Land 2
Land Bank Operational Highlights (2004)
• Loan portfolio–Philippine pesos (PHP)
• Loans to farmers–P16.6B ($296M) • No. of small farmer clients–352,333 • No. of partner cooperatives–1,442 institutions (CFIs)–458
also provides marketing capability-building assistance to enhance the competence of bank-assisted cooperatives in preparing and implementing a marketing plan. Deposit Mobilization. Land Bank is a major provider of deposit services, including for many small-scale depositors in rural areas. As of February 2005, Land Bank had almost 180 billion pesos ($3.2 billion) on deposit in just more than 2 million accounts (with foreign currency deposits adding another 10 percent). Because of Land Bank’s role as a government depository, government entities—mainly, local government units...