Selling UCPB

Early this year, the Aquino administration announced that it would bid out United Coconut Planters Bank, one of the dozen largest domestic commercial banks, by September 2015. Yesterday was the last day of September.

The announcement of UCPB’s impending sale was greeted with skepticism in many quarters—not least in banking circles—because there had been unkept promises and missed deadlines. From the legal standpoint the skepticism was not without basis. That basis was summed up in a two-word phrase: coconut levy.

UCPB came into existence during the martial law era, which in turn was the era of the coconut levy. For the benefit of those who were born after the regime of President Ferdinand Marcos, the coconut levy was the impost levied by the PCA (Philippine Coconut Authority) beginning in 1973 on every 100 kilograms of copra to finance projects intended for “the welfare of the coconut farmers.” Over 40 years have passed since the imposition of the levy—it ceased to be collected after the overthrow of the Marcos regime—and the coconut levy fund, with interest and other earnings, has grown exponentially. The most recent estimate I have seen of the size of the fund is P180 billion.

That amount is humongous. Part of the levy was used to finance investments in a number of coconut mills that today form part of CIIF (Coconut Industry Investment Fund), which is managed by UCPB. Thus, the buyer of UCPB could very well be buying coconut milling assets as well.

The coconut levy has also been used to fund corporate acquisitions not directly, or even closely, associable with the “welfare of the coconut farmers.” Chief among these are a sizable chunk of San Miguel Corp., which holding was finally declared by the Supreme Court, in a fairly recent ruling, as having been acquired with coconut levy funds and therefore owned by those who paid the coconut levy, i.e. the coconut farmers.

And how have the officially designated beneficiaries of the coconut levy fund fared since 1973? Coconut farmers have remained among the ranks of the poorest of Filipinos, and the coconut industry has been steadily declining over the years. Indeed, coconut farmers are among the Filipinos that policymakers and economic planners think about when they think of exclusive growth. They certainly have been left out of whatever economic growth there has been. Imagine what a fund of P180 billion could do for their welfare.

Back to UCPB.

The sale of UCPB, now a universal bank, will be the biggest Philippine banking sector event since acquisition of Philippine National Bank by the Lucio Tan group and PNB’s merger with Allied Banking Corp.. I have seen a list of the possible bidders for UCPB, but I would imagine that the nation’s largest commercial banks—BDO Unibank, Bank of the Philippine Islands, Metropolitan Bank & Trust Co., Land Bank of the Philippines and Rizal Commercial Banking Corp.—must be salivating at the thought of being able to acquire UCPB. The acquisition of UCPB by Land Bank would produce a mighty government-owned bank that will be a worthy successor to the almost-century-old PNB.

Despite the presidential tenures of such seasoned commercial bankers as Ramon Sy and Edward Go, UCPB unfortunately has not enjoyed the best of top managements. How else explain its lackluster record notwithstanding its status as a government-supported bank and its strong asset base?

In their assessments of the wisdom of acquiring UCPB, the Philippine banking industry’s leaders will doubtless accord a high point to UCPB’s comparatively large branch network, with the bank’s branches located in most of the 44 provinces where coconut-growing is an important economic activity. From the deposit-base standpoint acquiring UCPB would be a very big forward step for any of the largest Philippine commercial banks, for which they presumably would be prepared to pay a premium.

Is the sale of UCPB likely to push through this time around? It looks like it. The government seems serious, this time, about unloading UCPB. There are several reasons.

First, the sale would mean additional cash for the Treasury. Second, a bank merger that involved UCPB would produce a stronger bank in terms of region-wide banking-industry consolidation. And, most important of all, the sale would represent progress in the decades-long effort to untangle the coconut levy problem and to finally give back to this country’s farmers the fruits of the money exacted from them ostensibly for projects promotive of their welfare.


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