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KINGSTOWN, St. Vincent, Feb. 24, IWN – Almost one month after taking over the Building & Loan Association, the Financial Services Authority, it is yet to determine the true financial situation at the building society.

Eleanor Astaphan, deputy executive-director of FSA, told the Agency for Public Information (API) that the first few days after the Feb. 1 take-over were spent in a fact-finding exercise.

“And we are finding that it has become increasingly difficult to determine the true financial condition of the Association due to a number of factors, including lack of internal controls, … poor record-keeping and a clear disregard of prudent business practices,” she said in the statement last week.

She said prudent governance would demand that any institution produce monthly management reports and would allow for analysis of operation on a routine basis, to inform the decision-making process.

But the BLA’s books and record have not been audited for over two years, neither have monthly financial statements been prepared for that period.

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The FSA took over the BLA after EC$9 million was withdrawn in two weeks on the heels of a Jan. 18 letter by Ministry of Finance economist Luke Browne, who questioned the financial health of the 72-year-old institution.

And Astaphan told the API that any meaningful reorganisation strategy for the BLA is completely dependent on its true financial condition.

Read also: Collapse of BLA was ‘imminent’ – FSA chair

As such, the FSA is seeking to have the external audits for 2011, 2012, and the period of 2013 before the FSA’s intervention, completed “at the earliest opportunity”.

This, Astaphan said, is in a concerted effort to provide an accurate and up-to-date report on the business affairs of the Association to its membership.

She said the FSA has been unable to locate any evidence that previous management prepared cash flow report of liquidity management.

“Bank statements had not been reconciled for over a year, and there is no evidence to demonstrate that the Association prepared budgets, both for expenses and activities in the past,” she further said.

Focus on delinquent loans

Astaphan said the FSA — the state agency that regulates non-commercial banks financial institutions — has also focused on non-performing loans.

“These were completely out of control,” Astaphan said.

She said that as of Nov. 3, 2012, the BLA had 422 loans that were non-performing. Of the amount, 222 were over 12 months past due.

Past due loans total EC$70 million and comprised 30 per cent of the total loan portfolio.

“Interest continued to be accrued on loans past due for more than 90 days, which is a clear deviation from normal standards, and, as a consequence of that, income is being exaggerated and loses are being disguised.

“There were no adequate reserves for non-performing loans, and, in fact, provision for loan losses on delinquent loans was not being addressed at all.

“Loan valuation and evaluation of properties were not being routinely performed,” Astaphan said.

Since the intervention, the FSA has used a two-pronged approach, Astaphan said, adding that the agency is attending to matters relating to the management and control that focus on continued business of the Association.

“In other words, allowing us to keep the doors open and to meet the demands of the Association’s depositors and creditors,” she said.

Read also: FSA could have liquidated BLA

The FSA is also addressing the remedial actions to be undertaken.

“Liquidity remains of paramount concern to the FSA as we manage the Association’s daily cash flows,” she said.

Astaphan further said that even the strongest of financial institutions cannot withstand a run on deposits and the BLA, in its present circumstances, is no different.

The FSA will conduct on-going reviews of non-preforming assets “with a view to impacting positive cash flows” into the BLA and timely and responsible resolution, taking into consideration market conditions that does not affect real estate market, she said.

These efforts include RR Recoveries Ltd., a subsidiary of the BLA, about which Browne also raised concern in his letter.

Sharda Boller, executive-director of the FSA, said in a statement to the API last week said the BLA’s “mechanism for recovery, through the RR Recoveries Ltd. at its best was dubious, lacked transparency and had inadequate funding”.

And, Astaphan said all transactions by RR Recoveries Ltd. before the FSA intervention have been reversed.

Astaphan said that “in any other circumstances” the work that the FSA is doing “would have been undertaken behind closed doors.

“But we have taken to remain open to accommodate customers, to continue attending to daily business while at the same time begin the process of initiation of the remedial programme, attending to the Association’s operational policies, procedures and internal controls and dealing simultaneously with the IT issues…, management information systems, and the accounting processes,” Astaphan said.

“This is a completely transparent process and we welcome the input of the Association’s officers. We have found we can maximise efficiency in the decision making process by instituting several sub-committees, which we have done to date, and most of these meet daily to consider matters relating to liquidity, to loans disbursement, to depositor pay-out and to the operational policy review,” she further said.

She said the BLA “continues to work diligently to address matters relating to its intervention and will keep the public apprised of all relevant developments”.