I.

INTRODUCTION

Land Bank of the Philippines, also known as Landbank or by its initials, LBP, is a
bank in the Philippines owned by the Philippine government with a special focus on
serving the needs of farmers and fishermen. While it provides the services of a
universal bank, it is officially classified as a "specialized government bank" with a
universal banking license.

Landbank is the fourth largest bank in the Philippines in terms of assets and is
the largest government-owned bank. It is also one of the biggest government-owned
and/or controlled corporations in the Philippines.Unlike most Philippine banks,
Landbank has an extensive rural branch network. It services many rural sector clients in
areas where banking is either limited to rural banks or is non-existent. Landbank in
Dagupan City was established on May 8, 1958 as part of the Agricultural Land Reform
Code, or Republic Act No. 3844 to help with land reform, especially the purchase of
agricultural estates for division and resale to small landholders and the purchase of land
by the agricultural lessee. In 1965, Landbank's by-laws were approved and its first
board of trustees was formed, with the Secretary of Finance as chairman.

On October 21, 1972, Presidential Decree No. 27, signed by then-President

Ferdinand Marcos, emancipated all tenant farmers working on private agricultural lands
devoted to rice and corn, whether working on a landed estate or not. The system was
implemented through a system of sharecropping and/or lease-tenancy. Landbank was
tasked to collect 15-year land amortizations from beneficiaries at the cost of the value of
the land plus six percent interest per annum.

By 1973, Landbank was in financial distress. It lacked the resources and the
capital needed to implement the land reform programs and lacked the structure to
implement the programs efficiently. On July 21, Marcos signed Presidential Decree No.
251 which revitalized the bank. The decree granted Landbank a universal banking
license (the first bank in the Philippines to be issued such a license) with a social
mission to spur countryside development. The decree expanded Landbank's powers to
include lending for agricultural, industrial, homebuilding and home-financing projects
and other productive enterprises, as well as lending to farmers' cooperatives and
associations to facilitate production, marketing of crops and acquisition of essential
commodities. Landbank was also required by the decree to provide timely and adequate
support in all phases involved in the execution of agrarian reform and also increased its
authorized capital to 3 billion pesos. It also became exempted from all national,
provincial, city and municipal taxes and assessments.

Landbank was reorganized in 1977 when it was divided into three sectors to
better assess the needs of its customers. It was divided into Agrarian, Banking and
Operations sectors to strengthem operations and ensure long-term viability.

In 1982, the Agricultural Credit Administration (ACA), established under the same
law as Landbank, was abolished and all its assets and functions transferred to
Landbank. ACA's function was to extend credit to small farmers. Also in this year, Union
Bank of the Philippines (UnionBank) was formed, with Landbank having a 40-percent
stake in the government-owned commercial bank.

Landbank became the financial intermediary for the Comprehensive Agrarian

Reform Program (CARP) in 1988. It was also in that year that UnionBank started a
gradual privitization. The Aboitiz Group of Companies acquired Landbank's 40% share
of UnionBank then which it continues to own. Landbank also became the third member
of Expressnet, an interbank network, in December of 1991.

On February 23, 1995, Landbank's charter was once again amended. Its
authorized capital was increased to nine billion pesos and it became an official
government depository. The number of members of the board of trustees was also
increased to nine. On August 25, 1998, Landbank's authorized capital was once again
increased to 25 billion pesos.
STATEMENT OF THE PROBLEM

This study aim to know the status and problem of the past due loans of the
Landbank of the Philippines, Dagupan Branch, Pangasinan. Specifically, it seeks to
answer the following questions:
1. What are the status of the past due loans?
2. What are the problems encountered for the 3 areas:
a. Qualifications of the borrowers
b. Types of Loans
c. Types of Payment
3. What recommendation can be proposed in order to solve the past due loans
of the Landbank of the Philippines, Dagupan Branch, Pangasinan?
THE PROBLEM

The Landbank encountered problems due to the following factors and

consideration:
a. Qualification of the borrower
1) Borrowers
Cooperatives whose majorities of members are:
1) Small farmers
- Most of the borrowers were farmers, they lack qualification in terms
of daily income that would be the basis for them to pay the daily
amortization.
- Most of their payments were on seasonal/monthly basis, in this
aspect they would not be able to acquire inventory the soonest the
possible they should be
- They only had land title as collateral but some of them had only
OWWA as proof.
- Most of the borrowers lack requirements especially in times of
release.

2) Fisher folks
- Most of the borrowers were fishermen who had no permanent catch
that could support the payment of their debt.
- Most of their payments were on seasonal/monthly basis, in this
aspect they would not be able to acquire inventory the soonest the
possible they should be
- Most of the borrowers lack requirements especially in times of
release.
- Lack of financial support from the family members or co-makers to
pay their debts.
3) Small livestock raisers
- The small livestock raisers had minimally pass the requirements
and eligibility basis for loan grants
- Lack of family members or co-makers to assist them in their loan
requirements.
- Lack of capacity to pass the recommended requirements for the
loan.
4) Rural and Urban SME’s

- Must be a regular/ permanent employee of the concerned

LANDBANK client and has been in its service for the last two (2)
years. For LGU elected officials and their co-terminus appointees, the
service requirement is waived.
- Must have no pending administrative/criminal case filed against
him/her.
- In general, government employees must have at least thirty (30)
days of unexpected vacation and/or sick leave. However, public
school teachers and principals as well as LGU elected officials and
their co-terminus appointees are exempted from this requirement (not
applicable to private company employee).
- Must have no pending application for retirement or must not be due
for retirement within the term of the loan.
- Must be up-to-date on the payment of their existing loans, if any.
- Must have a monthly net take-home pay (MNTHP) of at least P
3,000.00 after considering all statutory deductions and amortization
of all existing loans, including the salary loan being applied for and
- Must have a co-maker who is employed in the same office/branch
of the agency within the same region with at least equal rank/salary
grade/basic salary and whose monthly net-take-home pay is at least
P3,000.00 and is not co-maker of another employee borrower under
this loan facility.
 - Other eligibility requirements as maybe imposed by the company to
its employees who shall avail of the salary loan facility.

TYPES OF LOAN

• Agricultural production such as crop, poultry, fishing and livestock

• Other agri-based projects
• The farmers and fisher folk loans
• Small and medium enterprises and microenterprises
• Agribusiness
• Agri-infrastructure
• Production Loan (PL)
• Working Capital (WCL)
• Fixed Asset Loan (FAL)

From the abovementioned loans, most of the borrowers’ occupation fall under the
farmers and fisher folk loans, granting this loan should pass their initial requirements but
to no avail, they keep on applying for a loan with very less capacity to pay. Second is
the agribusiness and small and medium enterprises and microenterprises, the main
problem in type of loans offered is that most of the borrowers prefer the small and
medium enterprises and microenterprises loan wherein the payment scheme was
monthly and weekly. In this aspect, revolving funds becomes slow due to accumulation
of payment.

TYPES OF PAYMENT
• Annual payment
• Semi-annual Payment
• Equal Quarterly Payment
 The problem in annual payment is the problems that might encounter by the
borrower before the due dates, semi-annual payment is also at stake and only
applicable to those who had collateral.

PROBLEMS ENCOUNTERED FOR THE 3 AREAS.

a) One of the perennial problems of small farmers, fisher folk and urban and rural
SME is that they lack access to bank credit. The final outcome of the current
banking restructuring, i.e., having large and stable banks, may improve their
access to bank credit because some banks will be forced to look for new
markets, and hopefully the small borrowers will appear in their radar screen.
b) As to type of loan, most of the borrowers do not have collateral, Landbank of the
informal lenders who lends to small farmers, fisher folk and urban and rural
SMEs have obtained high repayment rates. There are some linkages between
farm and non-farm enterprises both in the consumption and production sides.
The payment is higher than what is expected, that is why most of the borrowers
could not pay their debts on time resulting to non-paymernt of their loans.
c) Another problem encountered by the borrowers is the access of the technology
thru ATM, most of them had no knowledge on how to use atms, the design of a
credit program matters a lot when it comes to lending to small borrowers who can
offer very little collateral. This, however, requires expertise and total dedication
on the part of the lending institution. Their credit programs did not focus only on
one segment of a rural family as one business enterprise engaged in several
economic activities, would likely be less successful in attaining their objectives.
ALTERNATIVE COURSES OF ACTION

1) Ask for any valid collateral that should be suited to the way of life of the
borrowers

In this action, the bank may have motorcycle OR CR which is the main collateral
that SMEs and other borrower acquired.

Advantage:
1. Acquire the daily payment and less worries of monitoring their payments
2. Monitor the daily/weekly capacity to pay of the borrowers
3. It helps alleviate the burden on payment at the part of the borrowers
4. More collection if the collector set standards on collection

Disadvantages:
1. Additional expenses by means of transportation and collector salary
2. More paper works
3. The tendency of less collection, the same expenses

2) Strict Monitoring of Collateral basis loan for the for the Fishermen, Small
farmers, Small livestock raisers and Rural and Urban SME’s
In this case, those Fishermen, Small farmers, Small livestock raisers and Rural
and Urban SME’s who had less requirements and less collateral will be rejected.
Most of the small scale borrowers would not attempt to apply if there is a mandatory
collateral item

Advantage:
1. Attain assurance of payment due to collateral items
2. Less time to investigate for their capacity to pay
3. Focus would be on the credibility of the collateral items
4. Less paper works
5. Less transportation expenses
Disadvantage:
1. Less borrower means less income
2. Reaching the small scale borrowers will not be attained

3. Set Minimum Interest for the Borrowers

There are a number of micro finance institutions in the country that have
experienced high repayment rates from loans to the above-mentioned borrowers
because they adopted appropriate lending technologies. Thus, the design of a credit
program matters a lot when it comes to lending to small borrowers who can offer
very little collateral. This, however, requires expertise and total dedication on the
part of the lending institution. Credit programs that would focus only on one segment
of a rural family as one business enterprise engaged in several economic activities,
would likely be less successful in attaining their objectives.
Advantage:
1. More borrowers
2. Patronage from the customers
3. Help the poor
Disadvantage:
1. Less income

4. Everyday payment for the small business borrowers for the Fishermen,
Small farmers, Small livestock raisers and Rural and Urban SME’s
In this aspect it would not be a big burden for the borrowers, it is not very difficult
for them to have daily basis of payments
Advantage:
1. More borrowers
2. Patronage from the customers
3. Help the poor
4. More collections
5. Meet the target collections for the month
 6. Less worries that customers might not able to cope with their liabilities due
to small payments everyday

Disadvantage:
1. Needed another employee to collect daily payment
2. Expenses will also increase such as allocating gasoline expenses for
every collectors
3. More paper works for the daily inventory
 REALISTIC SOLUTION

It is, therefore, suggested that Land bank should focus on providing financial
services only to s
mall farmers and fisher folk, and to rural and urban SMEs. It should not distinguish
between farm and non-farm enterprises or between rural and urban SMEs. It should
lend to small farmers and SMEs either directly or indirectly through financial conduits as
what it has been doing in the past few years so long as it does not compete with private
microfinance institutions. It may continue lending to LGUs for small countryside
infrastructure projects.
As a bank for the agriculture sector, it must fashion a structure that will enable it to
have frequent contacts with local farmers and fisher folk on a firmer basis. Its program
to maintain or open new branches in other countries must, therefore, the reviewed
thoroughly. The withdrawal of Land Bank from the investment and commercial banking
business will raise the government’s credibility in establishing and maintaining a level
playing field in the domestic banking system.
It cannot be denied that Land Bank has some undue advantages over private
universal and commercial banks in investment and commercial banking business. First,
its total liabilities (i.e., deposits, bonds, domestic and foreign borrowings, etc.) are either
explicitly (by PDIC) or implicitly guaranteed by the national government if full. Thus,
risks in lending to or depositing money at the Land bank are much lower compared with
those of private universal and commercial banks. Second, being “an official government
depository with full authority to maintain deposits of the government, its branches,
subdivisions and instrumentalities, and of government-owned or controlled corporations.
RECOMMENDATION

This paper has suggested that Landbank should focus on its development
banking function and shed off its commercial and investment banking functions. More
specifically it had recommended that Landbank be transformed into a real market-based
microfinance development institution providing financial services to small farmers as
well as rural and urban SMEs.= in order to gain more income.
Also recommended that in sustaining their financial viability is equally important
as the income generated from its commercial banking operations is used to finance its
development programs they should also consider the customer service goals in order to
retain their good customers.

UNIVERSITY OF LUZON
College of Business Administration
 THE PAST DUE LOANS OF
LANDBANK OF THE PHILIPPINES,
DAGUPAN BRANCH, PANGASINAN

In Partial Fulfillment
For the Subject
Finance 31
 Prepared by:
JENNILYN C. SOLIS

September 2009