- Report explicitly warned against disclosure PM made
- Company borrowed $2.9 from BLA but had no insurance for loan
- Former member of NDP gov’t didn’t pay loan for 11 year
- 2 daughters of director borrowed $200,000 each but deeds were not registered
KINGSTOWN, St. Vincent, Feb. 13, IWN – It will take at least three months to know the full impact of statements by the nation’s politicians — both in government and opposition — on the future viability of the Building & Loan Association (BLA).
In fewer than 90 days, persons who have applied to withdraw their deposits from the BLA would qualify to collect their cash. What politicians say now would determine whether those depositors actually move out their money out of the 72-year-old building society or reinvest it.
But while both government and opposition politicians are seemingly politicising the issues surrounding the embattled financial institution, it is only with time that the nation will know who depositors sided with: Prime Minister Dr. Ralph Gonsalves, his government, and the Financial Services Authority (FSA) or Opposition Leader Arnhim Eustace and other opposition legislators.
But all Vincentians are likely to be affected — positively, or negatively — by the outcome, since BLA is said to be have assets worth 12 per cent of the nation’s GDP and is a major player in cross-investments in the local financial sector.
Eustace announced Monday that $1 million was withdrawn last year from Gonsalves’ mother’s account at the BLA.
Gonsalves is also Minister of Finance and at the time of the transaction, which Gonsalves subsequently said he did not know about, the Ministry of Finance was supervising the BLA.
But if Eustace’s disclosure left depositors in shock, they were undoubtedly left giddy by some of the details that Gonsalves revealed on Tuesday about the financial situation at the BLA in 2009 and 2012, respectively.
Gonsalves read from a confidential 2009 report on the BLA, which spoke of a member of the former New Democratic Party (NDP) administration who had a $200,000 loan and did not pay for 11 years.
A company had borrowed almost $3 million but had no corporate resolution to do so and no insurance on the loan.
Further, two daughters of a “leading board member” had each borrowed $200,000 but their deeds were not registered.
Meanwhile, a report from July 2012 said that while the liquidity of the BLA was “tight”, the management did not foresee any “liquidity stress”. But the report also said it was “not clear” that BLA may be in a position to handle “significant deposit withdrawals” as happened in 2009”, when a run on the institution drained $10 million.
Gonsalves seemed to justify the disclosure of the sensitive information because Eustace had spoken about the $1 million transaction from his mother’s account.
Gonsalves also accused Eustace of “nastiness” in making the disclosure.
His mother, Gonsalves said, is 93 years old and has Alzheimer’s.
The age and health of Gonsalves’ mother, Eustace said Tuesday, did not change the fact that the $1 million was withdrawn while the Ministry of Finance supervised the BLA.
And, the Ministry of Finance, which produced the 2009 report Gonsalves quoted on Tuesday, had explicitly warned against revealing its content.
“Under no circumstances should the Association or its staff disclose or make public in any manner the report or any portion thereof,” Gonsalves said, reading from the report.
“I am going to make some portions public because of the dastardly politicisation of this matter,” he, however, interjected.
He also said he was revealing parts of the report “for the public to get a good grasp” of the decision of the FSA to take over BLA — on Feb. 1 — and to reveal “the mischief” of the Leader of the Opposition.
Gonsalves said the Supervisory and Regulatory Division of the Ministry of Finance, from Aug. 11 to 27, 2009, conducted an examination of the situation at BLA as at June 30, 2009.
The report includes a sample of “troublesome or delinquent loans” at BLA.
The examination revealed “certain deficiencies in the overall condition, policies and practices of the Association,” Gonsalves said.
Directors of BLA and its management acknowledged existence of those deficiencies and expressed commitment to improve them, Gonsalves said, citing the report.
But even as he read four paragraphs of the report, Gonsalves said he was “proceeding here most reluctantly”.
He reiterated his government’s commitment “to working with the Building & Loan and the FSA to ensure the continued strengthening of the Building & Loan Association”.
“And I’m asking, pleading with persons not to take out their money…” Gonsalves said, adding that persons who have withdrawn should reinvest.
In ‘critical’ condition but no action
The June 2009 report concluded that “overall the condition of the St. Vincent Building & Loan Association is considered critical.”
The board “has fallen short in its fiduciary responsibilities by failing to formulate, and, in some cases, implement, appropriate strategies, policies and procedures to allow for the proper functioning of the institution. This has resulted in an astronomical level of delinquency.”
Gonsalves quoted the report as saying that from 2006 through 2008, 55 per cent of all loans were delinquent. At June 30, 2009 it was 45 per cent.
At the examination date in August 2009, “liquidity risk was accessed as high,” the report said.
“The Association’s cash flow has been restricted by the high, and increasing level of delinquency, as well as the unusually high request for withdrawals from special deposits,” the report further stated.
“It is not only now that we are seeing a run,” interjected Gonsalves, who said Monday that $10 million was withdrawn from BLA during a run in 2009.
“In addition to this, the high rate of dividend paid on deposits without an offset from a steady inflow of funds, place even more strain on the Association’s liquidity. Further to this, the association had no contingency plan in place to deal with the liquidity situation,” said the report, which also spoke about out-dated an inadequate management information system and poor internal controls.
The report said that external auditor had informed the board that BLA was “experiencing problems” but director took “no action to halt the deterioration. “The association is in a grave position and the probability of failing is considered high. The board of director and management must take immediate action to arrest the current deficiencies in order to prevent failure,” the report said.
Sample of delinquent loans
Gonsalves also told the press conference of some of the delinquent loans at BLA.
He said a “leading member of the board” had a loan in excess of $600,000 but the purpose of the loan was not stated.
“You see, everybody knows that there was a lot of friend-friend and incestuous business and financial relationships,’” Gonsalves said.
He further said that “a major figure in the management” had a loan of $971,043 but payments were made “spasmodically”.
Additionally, there was no collection plan for the $200,000 loan, which the former member of the government under the NDP had for 11 years.
Yet another former member of the NDP administration had a $548,863 loan for himself and and other family members, Gonsalves said.
“I am not saying there is anything wrong with anybody borrowing money. I am not saying that. I am talking about the size and the delinquency,” Gonsalves said,
The $548,863 loan for the former member of the NDP administration had a valuation that the borrower had provided.
“What sort of friend-friend thing is this? … You take the valuation provided by the man who is borrowing?” Gonsalves said.
“A particular company [borrowed] $2,976,735 [but had] no corporate resolution authorising the borrowing; no financial information on the borrower; no insurance for the loan,” Gonsalves further said.
Three years of losses
Meanwhile, Gonsalves said a review by external consultants in July 2012 said BLA “appears to be in a critical condition regarding profitability and solvency.”
For the three years prior to the examination, “the association has been making losses, which would be deemed greater if the accrual of interest on non-performing loans over 90 days was discontinued.”
If practise were discontinued the loss would be even more, Gonsalves said.
Non-performing loans were reportedly over 32 per cent; 20 per cent of the mortgage loan portfolio was reportedly over 12 months past due; over one-third was over 90 days past due and one-fifth was over 12 months past due.
“That is July last year you know,” Gonsalves noted.
“The FSA made the point in a release saying they are satisfied with the on-going work, which the external consultant and the Ministry of Finance are doing to help Building & Loan. They never said they were satisfied with the performance of Building & Loan in relation to that work,” he commented.
But Gonsalves said he did not think his revelations would cause further jitters among BLA’s depositors and shareholders.
“I don’t think so. If I thought so, I wouldn’t have done it.”
The press statement from the FSA, he said, gave “broadly the cover as to the details which I have spoken about.
“And you have to trust them. They are good people,” he said.
Gonsalves also accused the opposition of politicising the issue and shifting its “responsible position” of urging against withdrawal to saying that depositors must make their own decision based on the information they had.
“So, what do I do? I tell the people, I give them a snapshot as to the situation, but also to assure them about all the support mechanism which we have put in place, including the intervention by the FSA. And I have no doubt that people would feel much safer,” Gonsalves said.