Loose change

"The reaction of the banks is underwhelming."


By text and email, I asked the presidents of the five local banks that lent a total of $412 million (P21.42 billion), most of it unsecured, to Hanjin Heavy Industries and Construction Philippines (Hanjin) for their comment on the biggest loan default in the history of Philippine banking. Their reaction, if you ask me, is underwhelming. It is as if P21 billion were loose change.

I just hope that the banks take the same attitude of liberality when lending to small businesses. The way the banks lend to the small businesses, it is like, to use a Biblical passage, passing through the eye of the needle. It is easier to pass through the eye of the needle than to obtain a loan from the banks. Getting a loan from the banks is, as you should know by now, Heaven.

To be sure, the banks are not solely to blame for this setup. The main culprit is the Bangko Sentral ng Pilipinas whose regulations and policies are stacked against the small businessmen.

BSP has invented a monster called Know Your Client. Under KYC, groups of bank staff and officers alternately interview the small businessman, asking, nicely of course, all kinds of inanities to determine first, that the borrower is a human being, second, that he is a good person, and third that he will pay his loans.

Because of KYC, the banking industry cannot comply with the legally mandated minimum percentage of their loanable funds to be lent to small businesses.

Note that 99 percent of Philippine corporations are small businesses. They are also the biggest employers. What can you conclude from this setup? The economy should be growing faster than it is. And BSP is to blame.

If the banks can afford to absorb colossally high loan default like Hanjin’s P21 billion, then they can afford to lose money lending to small businesses. How much is the average loan of a small businessman? P200,000. How much is the Hanjin default? P21 billion. That’s money that could have gone to 105,000 small borrowers.

Now, did the five local banks in Hanjin default conduct KYC? I doubt it.

Here are the replies of the five bank executives:

Gil Buenaventura
President and CEO, RCBC

The Philippine banks are exploring all possible legal remedies with the goal of strengthening its security collateral position by gaining possession and/or control of the Subic shipyard, raw material inventories etc.

The banks’ $412-million exposure is covered by the continuing suretyship of Hanjin Korea and, in varying degrees of coverage, assignment of receivables from shipbuilding contracts, chattel mortgage and real estate mortgage.

The bankruptcy will affect the profitability of banks somewhat.  Hanjin is an isolated issue and as stated by BSP, the industry has strengthened its risk management capabilities.  Industry lending growth should continue.

No systemic risk to the banking industry anticipated.  Banks are better prepared to weather this Hanjin issue due to the industry’s improved capitalization vs during the Dewey Dee period, (and) are more profitable.  In addition, the $412-million industry exposure represent just 0.24 percent of total industry loans.

Nestor Tan
President and CEO, BDO Unibank, Inc.

Our exposure is $54 million. This represents only 0.15 percent of our total loan book. We are more than adequately provided to cover for potential losses.

We will be working with the creditor group to maximize recovery from the assets. The value of the assets far exceeds the loans so the challenge is to come to an acceptable rehabilitation agreement that will preserve the going concern.

The bankruptcy should have minimal impact on our generations, profit and future operations.

The Hanjin bankruptcy should not have a major impact on the banking industry. The industry is much bigger, stronger and better capitalized now than in 2008.

Cezar Consing
President and CEO, Bank of Philippine Islands

Philippine banks have approximately $412 million in loan exposure to Hanjin Philippines, some of it collateralized, some of it clean.  I believe the amount of exposure is only about 1/4 of 1 percent of the total banking system loans.  The Philippine banks have the capital and the loan loss provisions to readily handle this event.  

In other words, this event does not present a risk to the banking system of the country.  Philippine banks today are much larger and much better capitalized than they were 10, 20 or 30 years ago.  The banks will work together to craft a solution that preserves value and, hopefully, jobs of the workers in the shipyard.

Our loan exposure is $52 million, the smallest of the Philippine banks.  Our exposure is partly against receivables, and partly clean.  We will probably have a sense of potential recovery rate in a few weeks, after a recovery plan is agreed to.

Alex Buenaventura
President, Land Bank of the Philippines

For now I can only confirm that LandBank has $85-million exposure to Hanjin-Philippines.

We’ll have to address the problem. But the good news is we can recover the assets. The shipyard is worth $1.2 billion and the total exposure of the creditors is less than $400 million. Down the road, we hope to recover our exposure.

Arthur Ty
Chairman, Metrobank

Apologies but, respecting the legal process and the consortium, we have not disclosed any specifics related to the loan. 

I can say that the impact on Metro is minimal. And more so impact on the banking sector. We see this as a one-off and won’t have much of an impact on the banking system.

Topics: Tony Lopez , Loose change , Hanjin Heavy Industries and Construction Philippines
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