CoA cites loopholes in Landbank loans

By MARIA ELOISA I. CALDERON, BusinessWorld Reporter State auditors have questioned Land Bank of the Philippines’ grant of at least P1.12-billion loans in 2005, citing loopholes in the state-run bank’s compliance with central bank regulations. "In our review of loan folders of some borrowers, we noted that the... BSP (Bangko Sentral ng Pilipinas) regulations and bank policies as well as the terms and conditions of the loan approval were not complied with," the Commission on Audit (CoA) said in its 2005 audit report released recently. In August 2005, Landbank renewed a P150-million short-term credit to a leasing and finance firm involved in lending activities to small and medium enterprises and agribusiness ventures. But while the loan contract required the assignment of the borrower’s receivables and bond holdings as collateral, loan documents showed the notice of approval given to the firm did not include the bonds as part of the collateral, the CoA said. The same leasing and finance corporation also managed to avail of an additional P20-million loan on Nov. 18, 2005, despite its failure to comply with legal requirements, including the submission of audited financial statements as required by the central bank, the report said. On May 31, 2005, Landbank extended another P950-million credit to a real-estate company, which claimed the proceeds would be used to finance various property projects. State auditors, however, found the property firm used P790 million of the P950-million credit to pay off a term loan it had secured from another financial institution in 2001 and 2002. State auditors argued that refinancing a previous loan is not an acceptable reason for a borrower to secure the bank’s nod. "BSP regulations have put emphasis that the purpose of the loan shall be clearly stated and used as basis for granting the loan. Per credit policy, the acceptable loan purpose is to finance working capital and fixed asset acquisition," the CoA said, referring to BSP Circular 350 issued in 2002. Landbank officials declined to comment on the issue pending receipt of the CoA report. "It has to be a very specific reply that will include annexes if warranted," said Agustin Apilado, assistant vice-president for corporate affairs. He also said the reply would clear the seeming discrepancies noticed by state auditors. Landbank had argued that the use of a portion of the P950-million credit to pay off the real estate firm’s debts had been disclosed in the bank-approved credit facility, but the CoA maintained that the bank must comply with the central bank’s rule. The CoA also cited deficiencies in Landbank’s loan documentation. It found the bank’s regional branches to have released loan proceeds to 18 accounts without audited financial statements, 33 accounts with expired insurance coverage, eight accounts with no updated collateral appraisal report, 30 accounts without updated real estate tax receipts, and 23 accounts without updated income tax return or clearance. State auditors noted that non-performing loans had weighed heavily on the bank’s asset quality. Landbank has kept P83.627 million worth of past due accounts in its loan portfolio, the report said. It also has uncollected loans in the form of salaries to government employees amounting to P25.086 million.