Landbank mulls AMC for NPLs, foreclosed assets

The Land Bank of the Philippines (LBP) plans to assign its P29.6-billion bad debts or non-performing loans (NPLs) plus some P11.1 billion worth of foreclosed properties to an asset management company (AMC) or enter into a joint venture with other institutions.

"We are looking at options on how to dispose of our NPLs and ROPOA (real and other properties owned and acquired) we want to get the (best) possible combination and it’s either we do it singly or join other banks also wanting to settle their bad loans," said Gary B. Teves, president of LBP.

Teves said the bank’s strategy for reducing its NPLs by at least P10 billion by yearend includes partnership with foreign banks offering various recovery options such as outsourcing loan workouts, outright sale of NPLs, and transfer of NPLs or ROPOA to an AMC.

Teves said five investment banks have Landbank mulls offered to form an AMC. They are Lehman Brothers, Credit Suisse, Bank of America, Arthur Andersen and JP Morgan. He said LBP is also exploring the possibility of going into a joint venture with Metropolitan Bank and Trust Co. (Metrobank).

Metrobank and LBP are inclined to go into a joint venture because they have common borrowers such as Mimosa Leisure and Resort Corp. (MLRC), Reynolds Corp. and Bacnotan Cement. LBP’s total exposure in these entities is P2 billion.

Teves admitted LBP’s bottomline has been affected by its NPLs which, as of May this year, accounted for 23 percent of its total loan portfolio. He said LBP is pursuing a program to cut its bad loans by focusing on the top 50 past due loan accounts. The program includes measures such as cash collections, restructuring of loans, dacion en pago and foreclosure.

Included in LBP’s top 50 bad loans are a P1.5-billion exposure to Petrochemical Corp., of Asia Pacific; P1.2 billion to National Steel Corp., P939 million to All Asia Capital; P935 million to Reynolds Corp., P389 million to Victorias Milling Corp., and P400 million to Profinda Co.

Teves said the bank has set up a team that will monitor and check on these accounts on a monthly basis to ensure that disposal measures are pursued more aggressively.

LBP’s ROPOA surged 26 percent to P11.1 billion as of end May from P8.8 billion during the same period last year. The share of ROPOA to total LBP assets stood at 4.6 percent as of end March this year.

Industry statistics show, LBP’s ROPOA ranked fourth next to Philippine National Bank, Metrobank and United Coconut Planters Bank.

Currently, LBP is implementing an asset disposition program focusing on streamlining operating procedures to shorten processing time; enhance marketability of assets and widen distribution channels by hiring property brokers and leasing agents to market foreclosed properties.

Several of the country’s biggest banks are pushing for the creation of an AMC to settle their bad debts. Earlier, Equitable PCI Bank and Metrobank said they plan to write off their estimated aggregate debts of about P50 billion by assigning their bad debts to an AMC or enter into a joint venture with other institutions.

Under the AMC, banks will sell their NPLs at a discount to the AMC which will then rehabilitate the properties and subsequently sell the assets at a premium to other parties.

Banking analysts said that based on the current 16-percent NPL of the country’s 45 commercial banks, the existing NPLs now total P240 billion out of a total loan portfolio of about P1.5 trillion.

Bank’s bad debts piled up significantly at the height of the Asian financial crisis in 1998 as banks had difficulty collecting past due loans from their clients.

In another development, Teves said LBP won’t be able to meet the requirement of the National Government to remit about 50 percent of its annual net income since this would violate the bank’s loan covenant with the World Bank (WB).

"We have written Finance Secretary Camacho that we cannot remit any cash or stock dividends to the National Government this year without violating our agreement with World Bank," Teves said.

Gilda Pico, LBP executive vice-president said the existing arrangement of the bank with WB calls for the bank to deduct from its net income a portion that would go into provisions for probable losses, adjustment for inflation rate and funds for agrarian reform loans that usually go to paying landowners and in extending financial support to agrarian reform beneficiaries.

Pico explained that before the agreement with the WB, the only item deducted from net income was the loan-loss provisioning.

Pico said an option that the LBP can take is to ask Congress for a recapitalization but admitted this is no longer a practical option given the austerity measures being implemented by the Arroyo administration.

Still, Teves said LBP expects to help plug the government’s budget deficit by paying corporate taxes.

Under the law, government financing institutions and government-owned and controlled corporations are required to remit cash or stock dividends to the National Government.

Recently, the government proposed to increase the remittances to 70 percent from 50 percent annually as a means to cover up its budgetary shortfall targeted at P145 billion this year, assuring its creditors such as WB and the International Monetary Fund of its determination to implement fiscal consolidation. This will also help convince international credit rating agencies to change their negative outlook of the Philippines, thus improving its credit standing in the international debt market.

The proposal has yet to be approved, however, because of its legal implications. – Rocel Felix