PDIC on GFB bidding

This refers to the Gotcha column of Mr. Jarius Bondoc entitled, “GSIS members: Watch your bank,” that appeared in the Jan. 2, issue of The Philippine STAR.

The article stated that “x x x the Philippine Deposit Insurance Corp. (PDIC), as receiver, invited private financial institutions to buy up the GFB. The ailing GFB still had some value: P2.4 billion in assets, P500 million in cash, intact deposits, and a network of 22 branches. Yet no one bit, as the PDIC suddenly changed the rules midstream and doubled the asking price. x x x The GFB and the parent GSIS owe explanations to the government employees who own them. So do the Bangko Sentral, PDIC, and Governance Commission that squeezed GFB of funds. Not to forget, also the 0.4% political minority. Foremost of the questions they should answer is whether the GSIS members can recover their billions of retirement pesos in the insolvent GFB.” (Emphasis ours.)

Please be advised that there is no truth to the statements that “PDIC suddenly changed the rules midstream and doubled the asking price” and that “PDIC…squeezed GFB of funds.”

PDIC published the Invitation To Bid for the rehabilitation of GSIS Family Bank (GFB) on July 4, 2016 ( Philippine Daily Inquirer). The Invitation included the pre-qualification requirements and procedures for bidding to be observed by all prospective bidders based on terms and conditions approved by the PDIC Board. These terms and conditions were maintained throughout the bidding process. In setting the terms and conditions of bid, PDIC consistently applies standard parameters for rehabilitation of closed banks, namely (a) capital adequacy, (b) liquidity, (c) sustainability and viability, and (d) good governance. These parameters are intended to ensure that the closed bank is rehabilitated and that it may resume business and safety to its depositors and creditors, and the general public.

In response to this Invitation to Bid, eight investors indicated interest to rehabilitate the bank but there was only one prospective bidder-investor who complied with the pre-qualification requirements for GFB’s rehabilitation. Unfortunately, this investor also subsequently informed us that it was no longer interested to rehabilitate the bank.

In line with procedures, pre-qualified investors are given the opportunity to conduct due diligence on the bank and allowed access to bank records, to enable them to fully assess the financial condition as well as other risks attendant to the bank’s rehabilitation. The prospective investor no longer proceeded to conduct due diligence on the bank.

Contrary to the claim that “the bank has assets worth P2.4 billion, P500 million in cash and intact deposits”, the financial condition of the bank as of August 31, 2016, showed assets with estimated realizable value (ERVA) of only P1.013 billion, composed of P500 million in cash and an estimated P513 million in non-cash assets. Its liabilities, which include deposit liabilities amounting to P969.55 million, aggregated to P1.528 billion, or a capital gap of P515 million.

With respect to the recovery of government funds infused by GSIS to GFB, payment of this claim will largely depend on the sufficiency of bank assets to settle claims against the bank. GSIS, aside from being a major stockholder, is also a creditor of the bank. As a creditor, its claim is classified as ordinary credit in accordance with the priority and preference of credit under the law. Uninsured depositors’ claims constitute ordinary preferred credits. Stockholders will be paid only if there are remaining assets after all creditors have been paid the total amount of principal and interest due to them.

As of end November 2016, PDIC, as deposit insurer, has already paid 95% of total insured deposits amounts in GFB. Depositors with uninsured balances will have to wait for approval of the Liquidation Court of the Asset Distribution Plan for the bank. In the process of liquidation of the bank, PDIC will collect the loans and sell the bank’s ROPA to facilitate distribution of available assets.

Finally, please note that as deposit insurer and liquidator, PDIC takes over a bank only after it has been ordered closed by the Monetary Board of the Bangko Sentral ng Pilipinas.

We hope that we have clarified the issues raised in the column for the benefit of the depositing public. In the spirit of fair and balanced reporting, we hope that this letter will be published in its entirety. We would also be happy to sit down with Mr. Bondoc should he require further clarification on this subject. — JOSE G.

VILLARET JR., Vice President, Corporate Affairs Group, PDIC