BPI: Banking made simple

I recently discovered that I am not alone in my self-imposed ignorance concerning banking transactions. It seems that there are more people who choose not to discover or learn about the advantages of doing business with banks. Many of us continue to borrow money, make investments with family or friends, or go to government lenders and even the rip-off 5/6 loan sharks. A lot of it is dictated by our concern of not losing face and the other is about not being “big enough” to go to the bank. In exchange, it costs us more, exposes us to scams and ruins relationships.

My friend Roni Merk recently invited me to a sit down talk with “TG” Limcaoco, president of BPI Family Savings Bank, regarding good debts and bad debts etc. Nothing personal but given my ignorance of the business, the last thing I needed was to look stupid and be found out. Who wants to sit through two hours of banking terms, figures and acronyms. No, not me. However, seven emails and text appeals later, I grudgingly showed up for what I feared would be two hours of ear ache.

On the contrary, I rather enjoyed the experience probably because TG Limcaoco did not talk down to his audience of four. The guy simply sat down and started chatting with us about banking from “our” perspective and about ordinary people’s fears and concerns.

What I discovered from the “talk” was that many of us don’t realize the importance of choosing a bank and what it means to us in the future. For instance, I bank with BPI but never bothered to know why they have “BPI Family Savings Bank” which TG heads. I learned that BPI Family Bank is the consumer bank while BPI is the corporate bank. So in terms of my needs, BPI Family would actually be more useful for me because they are the ones who handle car loans, housing loans and small business along with the traditional checking and credit card transactions. In effect while I am a BPI client, I don’t have “business history and familiarity” with the guys who could serve me better. The “history” also makes a big difference in terms of fast approval, better rates and account management.

While “practical minds” suggest that a savings account is not a good idea because of low interest returns, “savings” is the most basic way of building up your “equity” which is another word for capital. (Note to self: Teach daughter about equity). When you go to any bank to get a loan, TG warns us that all banks expect you “to have skin in the game,” or put your share of the money down, normally 20 percent minimum of what you need to borrow. If you buy a house or a condo via pre-selling terms where you pay 20 percent payable in two to three years you can take that to the bank six months before the unit is turned over and get a loan to cover the remaining 80 percent final payment because you can show equity. Six months gives the bank enough time to do the title checks, credit check etc., and also gives you a strong backer who will make sure that the project is finished and that the title is turned over before more money is paid out.

Another small matter that could have big consequences is choosing a bank for proximity and convenience, instead of canvassing for better rates, terms and conditions. Between two banks, a housing loan could cost you P10,000 or effectively one percent more per year, or P150,000 over 15 years. If you happen to have a current loan, you might want to canvass and if you find a better rate, you could try to get your current bank to match it or ask the bank with the better rate if they can take over the loan. One good tip from TG is find a friend or relative who works in a bank or knows enough on financing to sort out which banks has the best offer.

From the beginning, TG made it clear that taking out a loan has to be based on the presumption that it is a good debt and actual investment. Good debts that are real investments, are purchases for things intended to improve your quality of life, maximize your use of money and increase your ability to produce more money, and is something you can afford to pay. A “family” car that increases your mobility, improves the quality of life of your spouse and children and saves you time and money is a good investment. A sports car, diamonds and watches are not.

So why take out a loan? If you’re a newbie putting up a business based on your own cash or “equity”, chances are you can only grow the business based on what you have. But if you use the bank’s money (OPM = Other Peoples’ Money) you could make it bigger. If you’re saving for a car or a house, your money sits in a “box”, while you continue to spend on transportation or rent. In a loan the money you would be putting on saving services the loan while letting you have the “useful” things that help you maximize your resources.

An important rule to remember about loans is that you must have the capacity to pay, meaning you have enough money for your regular expenses for food, clothing and shelter, that you have an emergency savings fund which is separate from your regular savings. Many people make the dangerous mistake of treating their month-to-month savings as their emergency savings as well. So when they use the money as a deposit or equity for a car or house, they are at risk of losing it all when a medical or financial emergency occurs.

The next time you think of getting a loan, just remember that borrowing from relatives or in-laws complicates relationships and gives people the idea that they have the right to be concerned or meddle in the business. With banks it’s all about your business plan and your business history with them. While the bank manages your account, you in turn must manage your reputation. TG advises that you must always follow the principle of full disclosure. Don’t misrepresent the purpose of the loan, or use the acquired asset for something other than its intended purpose. Don’t run away from your obligations and ALWAYS talk to the bank, whatever the situation or the problem maybe. That way the bank can be your partner and can be great at “helping you build your dreams.”