The Bangko Sentral ng Pilipinas (BSP) may have to absorb some of the bad assets of Urban Bank, particularly its non-performing loans (NPLs), as an added sweetener to attract more investors, BSP Gov. Rafael Buenaventura said Monday night.
Buenaventura said the NPLs of the bank might have gone up to P3.2 billion to P3.5 billion from P1.2 billion after it absorbed an estimated P2.2 billion in bad loans of its investment house subsidiary, Urbancorp Investment Inc.
The bank purchased the bad loans, in the form of promissory notes, held by Urbancorp so the latter could pay its trust account clients.
"We're always flexible," Buenventura said, "as long as it is within the law. We will see (if we can absorb these NPLs).
NPLs are loans not paid for three straight months. It represents a deterioration in the quality of the assets of the bank because it means it could not collect on these receivables as they fall due. It could lead to serious liquidity problems like what happened to Urbancorp, especially if there are heavy withdrawals.
Another way to attract investors to buy Urban Bank, which was closed and put under receivership on April 26, is to ask its biggest depositors to refrain from pulling out their funds from the bank for a certain period after it is reopened. This way, the new owners would not have to shell out more cash to rehabilitate the bank.
"If there is a shortfall (in cash), all depositors should be kept on hold," he said.
In fact, he said some of its depositors were willing to convert part of their deposits into equity in the bank. When the bank was closed, Urban Bank said it had P8 billion in deposits but Buenaventura claimed it was only P6 billion. Of the amount, around P550 million were insured with the Philippine Deposit Insurance Corp. (PDIC).
Right now, he said the BSP and the PDIC are still evaluating the books of the bank, focusing on its assets and liabilities. Buenaventura said there might be some obligations that have not been recognized by the bank or it might have been recorded as off-balance sheet items.
As of April 25, the last day of its operation, Urban Bank president Teodoro Borlongan said the bank had total assets of P15 billion and liabilities of P12.8 billion, resulting in a capital of P2.2 billion.
Buenaventura said interested buyers of the bank, including Banque Nationale de Paris, Kepple Tattle Bank of Singapore, Banco de Oro, have been given until June 15 to submit their proposals to the PDIC. He said the PDIC will evaluate these offers and pick up the one that will entail the least cost to the bank regulators and the depositors.
"The new investors may have to bring in more capital, unless it is a big bank buying it, then they will just have to merge it," he said. He could not say, though, how much funds would have to be spent by the new owners to rehabilitate and reopen Urban Bank.