Here’s a market opportunity to assist Rural Banks to address the disposition their acquired assets. Watch this space.
From BusinessWorld Philippines
November 20, 2012
Rural banks urged to unload ROPA
“Real and other properties acquired (ROPA) should be liquidated in a period of five years, as required by the central bank. But there are still so many banks that hold on to their ROPA even if they already have liquidity problems,” Chuchi G. Fonacier, BSP managing director for supervision and examination, said at the Rural Bankers Association of the Philippines (RBAP) symposium yesterday.
She explained that banks preferred to be penalized by the BSP instead of sell their foreclosed assets as they wait for these properties’ prices to rise.
“We see during examinations, that there are some banks that cannot even serve deposits anymore, their capital is deficient, and yet they still cannot let go of their ROPA,” Ms. Fonacier said.
While it is a business decision on the part of banks to make the most out of their foreclosed assets, she stressed that banks are not in the business of managing property.
Capital adequacy should still be the primary concern, she added.
Liquidating these assets can inject much-needed capital to help banks comply with the 10% capital adequacy ratio.
The issue was raised during the RBAP symposium yesterday as some rural banks complained the BSP doesn’t teach them how to sell or market their foreclosed assets. They claimed that, had they known they had to sell their ROPA, some banks wouldn’t even have to be shuttered since they would have made money from the sales.
BSP Deputy Governor Nestor A. Espenilla, Jr. rebuffed these allegations, though, pointing out that this is banks’ responsibility.
“That’s part of what they need to know as bankers. If they don’t know, they should obtain the knowledge from appropriate experts or hire one,” Mr. Espenilla said in a text message yesterday.
He urged banks to dispose of their ROPA within the five-year timeframe required by the BSP because the assets are illiquid and unproductive. Moreover, they weigh on banks since they are required to set aside cover for their ROPA.
“The risk weight of ROPA is 150% versus the normal [risk weight] of 100%. That’s a strong enough incentive to get rid of ROPAs as soon as possible,” Mr. Espenilla said.
As of the first quarter, rural banks held P8.938 billion worth of foreclosed assets, 10.89% higher than the level the year before. Their allowance for ROPA totaled P726 million, climbing 9.19% from last year.
The ROPA of rural banks comprised 5.06% of their gross assets as of the first quarter.
In comparison, universal and commercial banks held P92.174 billion in foreclosed assets in the same period, only 1.42% of their gross assets of P6.499 trillion. — Diane Claire J. Jiao