Bad banker (3)

This is the third of my series of columns on bad banking. The first two, on March 9 and March 14, were devoted to Land Bank of the Philippines, our second largest commercial bank.

The previous columns detailed how LBP failed to emancipate our six million farmers from centuries of bondage by its failure to bankroll the landholdings of land reform beneficiaries and to boost agricultural production.

Today, the food shortage is 25 percent of total demand. Put another way, the shortage means more than 28 million of 115 million Filipinos do not have food to eat. I wonder why the government keeps saying it’s more fun in the Philippines.

LBP deploys only P40 of every P100 of its loanable money to actual loans, leaving P1.5 trillion lying idle or parked in some useless government IOUs now earning very little, given the current stratospheric interest rates.

LBP was founded 60 years ago precisely to finance land reform and boost agricultural production. In 2021, LBP lent just P700 million to 10,000 agrarian reform beneficiaries – two-thirds of one percent (0.65 of one percent) of its total loans. In addition, LBP’s loans to agriculture are only 26 percent of total loanable funds – the same ratio as its privately-owned peer banks.

And I doubt that the 26 percent really went to agriculture. The bank simply could buy government securities that meet compliance with agri-agra lending. Under the Agri-Agra Reform Credit Act of 2009, banks must allocate 25 percent of total loanable funds to agriculture.

Of the 25 percent, 10 percentage points must go to agrarian reform beneficiaries. But the BSP itself weakened the law by allowing the banks to buy aggie securities, instead of forcing banks to go out and lend directly to farmers and support services.

LBP devotes only 0.65 percent (a shameless less than one percent) of its total loans to agrarian reform beneficiaries when the law itself mandates at least 10 percent.

Meanwhile, in the United States, two major banks have failed – Silicon Valley Bank of California (SVB, assets: $209 billion, No. 16, and $175 billion in deposits) and Signature Bank of New York ($110 billion in assets, No. 29, and $88.59 billion in deposits).

SVB catered to Silicon Valley tech companies; Signature Bank to cryptocurrency companies. Both tech and crypto currency industries have been pummeled by declining demand, mass layoffs and drastically reduced valuations. In particular, the crypto industry has been marked by bankruptcies and rampant fraud. So the business is like gasoline retailers servicing arsonists.

SVB is the second largest bank failure in US history, after the 2008 financial crisis. Notes on SVB: • SVB was lending only 32 of every 100 of deposits. Our Land Bank lends P40 of every P100 deposit and does not bother to roll the rest of its deposits – P1.5 trillion. That money can be geared six times to help the economy.

• SVB had serious conflict and/or regulatory problems. Its ousted CEO sat on the board of San Francisco Fed, its regulator. The same CEO was selling stocks heavily in February til early March. The sales were part of his compensation package.

• President Biden lined up $100 billion in rescue funds plus $25 billion more. He claims it’s not tax money. But the rescue money has for collateral the same money-losing IOUs that failed SVB. In effect, the risks of private banks were absorbed by the government.

Since the government is funded by tax money, in effect taxpayers absorbed the SVB’s risks, without the people’s consent. It’s called democracy and there is an election coming.

• In the past 20 years, 500 banks failed in the USA, 440 of them collapsed after the passage of Dodd-Frank Wall Street Reform and Consumer Protection Act in 2009 to prevent bank failures. Incidentally, the coauthor of the law, Barnett Frank, was on the board of the failed Signature Bank.

• The Biden rescue money will rescue rich Americans, 97 percent of SVB depositors who are uninsured. So much for inclusion.

• SVB was a believer in ESG (environment, social responsibility and governance) and DEI – diversity, equity, inclusion. In the end, it did not make SVB any more profitable, liquid or safe.

* * * • Trouble brewing in the Philippine Military Academy Foundation, Inc. Two rival groups of officers are battling for control of the foundation which has about P100 million of mostly donated funds. In their recent election, about 369 ballots – 75 percent of total members, were disenfranchised because the votes were sent by the wrong courier. Denied their right to vote are mostly company-grade officers – lieutenants and captains.

One thing about our PMA officers. They are also gentlemen. So electoral disputes, unlike those involving politicians, are settled peacefully. Hopefully.

• This one for Ripley’s. In Dasmariñas City, Cavite, there is a recently built four-story modern school building along Aguinaldo Highway. It has no toilet facilities (the rule now is a toilet for every room) and no running water. The pupils are being made to ferry water four stories up and down. That’s not all. The principal had this funny idea one time to require parents of the pupils to do masonry work and gardening in the school. Isn’t this a modern form of slavery? Or community in action?

I asked Dasma Rep. Elpidio Barzaga, a brilliant lawyer, about it. His wife, a nurse, is the mayor. Pidi’s reply by text: “Mahina ako” kay DepEd Secretary Sara Duterte.

At the Tuesday Club, I met the spokesman of Vice President Sara. I brought the water lack in the Dasma Malinta school to his attention. He promised to act on it. Meantime, Pidi is nursing his political woes.

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