The Local Finance Committee rejected the cheapest of three loan offers because its interest rate could move. The two contracts it accepted can move as well — and by September 4 the City's own lawyer was asking the banks to take that machinery out.
DUMAGUETE CITY — Three banks offered to lend the City of Dumaguete money for its ₱2.185-billion borrowing programme. One quoted 4 percent, the other two 4.5 percent. The City took the more expensive pair, and the reason it put in writing was the interest rate.
The Local Finance Committee's Resolution No. 1, adopted on July 31, 2026 and signed by Mayor Manuel Sagarbarria among others, found the Land Bank and Development Bank of the Philippines offers "more beneficial and advantageous" than the one from Philippine Veterans Bank, "particularly with respect to the interest rates." Veterans' rate, the resolution said, was "variable and escalating"; the two government banks offered "the more stable indicative fixed interest rate of 4.50% per annum."
The word the resolution itself uses — indicative — is where the reasoning comes apart. Neither government bank promised 4.5 percent for the loan's fifteen years. Each conditioned that rate on the City keeping "substantial deposits" with it. Each draft agreement carries a clause allowing the rate to be changed. And on September 4, four days before the Sangguniang Panlungsod voted, the City Legal Officer asked both banks to strike those clauses out — an admission, in the executive's own correspondence, that the contracts were not fixed-rate as drafted.
The offer that was rejected for candour
Veterans Bank's proposal is dated February 12, 2026 and carries the City Mayor's Office receiving stamp from the following afternoon. Two pages: a facility of up to fifteen years, described in the document as set "per client request"; a two-year grace period on principal; monthly amortizations after that; a two-year availability window. Interest at 4 percent per annum, fixed for the first year, then repriced each year at the one-year BVAL benchmark plus two percentage points, and never below 4 percent. The bank's July 23 letter calls that a preferential rate that needed special approval. The proposal also asks the City to hold average daily deposits worth at least 40 percent of the outstanding balance, with one percentage point added the following year if it does not.
Veterans, in short, wrote down how its rate would move and where it would stop. That is what the resolution held against it.
What DBP's papers actually guarantee
DBP's offer sheet of February 13 quotes 4.5 percent "provided that substantial deposits continue to be maintained with DBP." The bank's June 3 approval — Annex H of the bundle the executive submitted to the Council — says what follows if they are not: "Otherwise, variable rate based on 3-month BVAL plus credit spread or at 5.50% p.a., inclusive of GRT, whichever is higher subject to quarterly re-pricing." The same term sheet puts a figure on "substantial": "Maintenance of at least ₱1.0 Billion in CASA deposits in order to maintain the 4.50% p.a. interest rate." For scale, the financial statements in that same submission record the City's total 2022 revenue as ₱1.22 billion.
The draft Term Loan Agreement transmitted to the Council on August 27 keeps the mechanism and drops the figure. Section 2.07(a) ties the rate to those same unquantified deposits and provides that an adjustment takes effect after notice; if the City objects, its only remedy is to repay the whole loan, and if it does not, "the Adjusted Interest Rate shall be considered deemed accepted by the Borrower." Section 2.07(b) lets either side reopen the rate once it is "no longer reflective of the market." The promissory note the City would sign at each drawdown is headed "Form of Promissory Note (Variable Interest Rate)" and speaks of an "initial rate." Section 9.11(a), where the required deposit balance belongs, is blank.
DBP's revised term sheet of August 12 deleted the ₱1-billion sentence and the 5.5 percent fallback. It did not touch the contract clauses that make the rate adjustable.
What Land Bank's papers actually guarantee
Land Bank's offer of January 5, repeated verbatim on July 23, reads "(Indicative) At 4.50% p.a.… provided that substantial deposits continue to be maintained with LBP," and adds that the terms "are subject to market conditions at the time of availment." The Summary of Terms folded into the contract as Annex A repeats that caveat. Section 2.8(c) of the agreement's General Conditions makes the rate "subject to upward or downward adjustment" whenever a law, rule or regulation alters the bank's cost of funds or cost of intermediation, on thirty days' notice, each notice becoming "part of this Agreement by reference." Under Section 4.2 the City's way out is to repay everything within thirty days. Nowhere is "substantial" defined.
Lined up honestly, the three offers read: Veterans, 4 percent, variable after a year by a stated formula, with a floor; DBP, 4.5 percent, contingent on a deposit balance once quantified at ₱1 billion, otherwise repriced quarterly, with a deemed-acceptance clause; Land Bank, 4.5 percent, "indicative," contingent on a deposit balance never quantified, adjustable when the bank's funding costs change. The only bank that specified the mechanics of its own increases is the one that lost.
A figure with no arithmetic behind it
Resolution No. 1 states that the Veterans rate "may reasonably be expected to increase to around 6.80% per annum." It cites no BVAL reading, no date and no computation. The City Legal Officer's September chronology puts the same offer at "6% interest rate per annum at the minimum," which the proposal contradicts on its face: its minimum is 4 percent. Whatever produced 6.80 percent was not applied to DBP's own fallback, which rests on the same benchmark family plus a spread, nor to Land Bank's cost-of-funds clause. The rejected bank's rate was projected forward; the chosen banks' rates were treated as if they could not move at all.
Kept off the field
Veterans was not simply outscored — it was never entered in the process. The Bureau of Local Government Finance certified the City's borrowing capacity on March 12 against a loan application that named only Land Bank and DBP. The City's March 23 requests for a Bangko Sentral Monetary Board opinion named only Land Bank and DBP. When the mayor wrote on July 31 asking for draft agreements and for clarification of fees, penalties and what the security would do to the City's accounts, the letters went to two banks; Veterans, whose proposal had sat in the mayor's office since February 13, was not written to. On August 25 the Feasibility Study Committee told the Independent Review Committee the loan terms were "fixed for the full 15-year term, no repricing." The Veterans offer appears nowhere in the review record.
The proposal had itself listed the Monetary Board opinion, the BLGF certification and a Sanggunian resolution among its conditions precedent. It was asking to be run through the process it never entered.
"Unsolicited" — and a visit on July 21
The resolution describes the Veterans proposal as unsolicited. The proposal says its fifteen-year term was fixed "per client request." And according to the bank's July 23 letter, a City Hall officer, Leonidasa C. Oira, came to its Dumaguete branch on July 21 and asked that the February 12 proposal be re-dated to July 23 on identical terms. The bank refused: a new date meant fresh approval, and rates had risen since February, so a new proposal would cost more than the preferential one already on the table.
An offer that had been, in the City Legal Officer's words, "outright disregarded" is not one an office asks a bank to re-date — least of all onto a date inside the authority the Council granted on July 14.
The comparison that was available
Reasons to prefer a government bank exist. Veterans is the smaller institution and capped the facility at its single-borrower limit; DBP already holds the City's National Tax Allotment account; and the security Veterans sought — an assignment of the NTA "and other local revenues" — reaches further than the 20 percent of NTA each government bank took. None of that is in the resolution. What the resolution gives, over the mayor's signature, is the interest rate, and the executive's own annexes undo it.
A comparison worth the name would have sent all three offers through the same BLGF application and the same Monetary Board request, put the same July 31 questions to all three banks, laid all three before the Independent Review Committee, and priced each rate on the same benchmark assumptions — including what each bank wanted on deposit in exchange for its headline number. Short of that, no one can say that 4 percent with a published formula was the worse deal than 4.5 percent with a blank space.
Unanswered
Who calculated 6.80 percent, from which BVAL reading, and why the same arithmetic was never applied to DBP's 5.5 percent fallback. What deposit balance each government bank will in fact require, and what it costs the City to leave that much money sitting in a current account for fifteen years. Whether either bank has agreed to remove the repricing clauses the City asked it to remove on September 4. Why the lowest offer, received on February 13, never reached BLGF, the central bank or the reviewers. And who decided, on July 21, to ask a bank to change a date.
The City rejected the only bank that said plainly that its rate could move, then told the Council the rates it had chosen were fixed. The contracts read otherwise — and the City's own lawyer has now put that in writing to the lenders.
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