COA finds LandBank lost half-billion in loans in 2010
The LandBank the Philippines lost almost half a billion pesos in loans to cooperatives and countryside financial institutions in 2010, the Commission on Audit (COA) reported.
The COA, in its 2010 report on the LBP released recently, said the state bank wrote off P471.19 million in loans. The accounts were classified as uncollectible because of the financial difficulties of the borrowers or because the borrowers could not be located. The amount was an 882-percent increase over the P47.982 million in writeoffs in 2009.
State auditors traced the huge increase in uncollectibles to a lax lending policy adopted by the bank in 2009, which no longer required comprehensive surety agreements and other collateral requirements for some borrowers.
The COA advised the bank to continue to try to collect the bad loans should the finances of the cooperatives and other countryside borrowers improve.
The LandBank, tasked with promoting countryside development and providing financing services to farmers and fisherfolk, launched a more aggressive lending drive in 2010, reporting over P32 billion in countryside loans channeled through hundreds of farmers and fisherfolk cooperatives and countryside financial institutions. In the first quarter of 2011, it reported overall profits of over P7 billion.
Of the written-off accounts in 2010, the bulk or 88.08 percent pertained to cooperatives, while 11.92 percent pertained to countryside financial institutions.
The audit agency said the laxity in granting the loans exposed the bank to credit losses. It noted that LandBank granted loans to cooperatives even without hard collateral, and seldom with underlying collateral.
In the past, collaterals commonly used for cooperative loans were deeds of assignment of receivables and comprehensive surety agreements. These also bound the key officers and management with the principal borrower and made them personally liable to the bank in case of nonpayment.
The COA said that as a general rule, comprehensive surety agreements were required for all types of loans. But a new credit policy issuance handed down in 2009 no longer required such agreements for cooperative accounts.
The COA recommended that the LandBank revisit its policy on the granting of loans to cooperatives and countryside financial institutions, particularly on collateral offered by the borrower.
The bank should also not simply writeoff the accounts but try to collect them using all available legal means, it said.
In response to the audit findings, the LandBank said it had adopted an “enterprise-based approach” in extending credit to various cooperatives and institutions. It said it also had credit enhancement instruments in place to mitigate the risks of lending to priority sectors that usually lacked hard collateral to offer.
The LandBank management assured the COA that it had taken steps to mitigate the risks of lending to priority sectors.
It said it would continue to provide loans to farmers and fisherfolk as part of its mandate, but without sacrificing its viability as a government financial institution.
These include the enrollment of accounts to credit guarantees, such as the agricultural guarantee fund pool and credit surety fund; and the requirement of a confirmed market tie-up between cooperatives or farmers groups with reliable buyers or processors.
The latter is to ensure that there would be a market for the products of the farmers and fisherfolk. Both parties would sign an agreement which would also help ensure the collection of the loans that the LandBank provided to the cooperatives.
