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Over R80 billion as of 2004 |
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By LEE C. CHIPONGIAN
The Manila Bulletin 08/08/2005 The Bangko Sentral ng Pilipinas is urged to review and reevaluate its credit policies due to its high concentration of loans to the Philippine Deposit Insurance Corp. to avoid significant loss if PDIC is unable to settle obligations. According to a document, about 64.85 percent of BSP loans are concentrated to PDIC worth P80.72 billion in 2004. This amount is 86 percent higher compared to P43 billion in 2003. "BSP is exposed to a possible significant loss (in case) of PDIC’s inability to settle its obligations," the paper said. "We recommend that (BSP) should review and re-evaluate its credit policies to address the existence of concentration risk." In fact last year, the paper said the BSP could have earned P117.9 billion in interest income alone, had it been collected and relent to the banking sector. Under the Banking Services Sector of the BSP, it has a task force on banking and systemic risk which studies financial assistance to banks and the PDIC. As of December last year, the BSP Department of Loans and Credit has a total loan portfolio of P124.47 billion. PDIC has the biggest share of P80.72 billion while loans to National Government/RP amounted to P20.7 billion. Other loans were rediscounting and emergency loans worth P22.8 billion. In the meantime, the paper also criticized the BSP’s policy on minimum interest rates and premium period of maturity of its loans to PDIC. It said that unlike loans to rediscounting and emergency loans, both have maturities of 360 days, loans extended to PDIC however has long-term maturity ranging from five to 45 years with very low interest rates. Data showed that 34.24 percent or P27.64 billion of the loan outstanding balances have 0.5 percent to two percent interest rates. "(BSP) should include the minimum and maximum amounts, terms and interest rates that can be granted to PDIC in its new set of credit policy." The document also cited that besides extending long-term loans, the central bank also imposes "very lax mode of loan payments" from PDIC. Figures show that out of the P80.72 billion outstanding loans to PDIC, only 86.27 percent or P69.64 billion had "bullet (or one time) payments of principal at the end of the loan term." The paper said these modes of payment – annual or quarterly interest and principal payments, annual/semi-annual payment of interest while principal is paid upon maturity, and one time or "bullet" payment of interest and principal at the end of the term – have the effects of interest income lost of P117.9 billion. "Interest income of P117.9 billion forgone in allowing PDIC to pay interest on loans at maturity," the paper said. This means the BSP lost the opportunity to earn more or less P117.9 billion (in 2004) on the interest income on the P42 billion had it been collected and re-lent to banking institutions under the regular rediscounting scheme. "BSP should ensure that its credit terms and facilities should protect (BSP) from incurring significant losses," the document warned the central bank management. Sections 82 and 84 of Republic Act No. 7653 authorize the BSP, through the DLC, to extend rediscount, discounts, loans and advances, and emergency loans to banking institutions. While the BSP Charter is silent in granting loans to the PDIC, Section 13 of R.A No.3591 as amended by Sec. 18 of R.A. No. 7400 and R.A. 9302, the PDIC Charter, authorizes PDIC to borrow from BSP. The BSP’s Monetary Board has adopted the policy that the granting of loans to the PDIC will be initiated and evaluated by the Supervision and Examination Sector while DLC’s responsibility is the proper implementation of the terms and conditions of the loan approval, for example the release of the loan proceeds to PDIC, booking of the loans, monitoring of PDIC’s compliance of the loan conditions, and collection thereof. |
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