The GSIS Family Bank

We would like to clarify some of the issues discussed in the article GSIS Members: Watch your bank written by Mr. Jarius Bondoc in his column Gotcha, previously published in the Philippine STAR.

The primordial focus of GSIS will always be the interest of its members and pensioners and the sustainability of its funds. GSIS has more than enough funds to meet its financial obligations to current and future pensioners. As of year-end of 2016, the System’s net income reached P56.19 billion*, 20% higher than the previous year’s level of P46.96 billion. Total assets was posted at over a P1 trillion* (*based on unaudited Financial Statement for 2016). The life of the fund is 34 years, which means that members are assured that when they retire in the future, GSIS will pay their pension throughout the duration of their retirement.

In the case of the GSISFamily Bank (GFB), we would like to clarify certain facts to avoid certain misunderstanding. It should be pointed out that GSIS did not invest in the bank – GSIS merely became a controlling shareholder after ComSavings Bank (CSB) assigned its shares to GSIS in 1987 to settle a loan with GSIS. Sometime in 1988, the GSIS offered control and management of CSB to the Central Bank. The Central Bank did not accept the GSIS’ proposal and instead, directed GSIS to prepare and submit a rehabilitation plan for CSB. Thus, GSIS, in compliance with the directive, made several attempts to nurse the unhealthy financial state of CSB. For one, it was recapitalized in 1999 with P2.4 billion. Through the years and despite the best efforts in managing the bank, it never generated a return for the pension bank stemming from the quality of its assets portfolio and the increasing cost of running a thrift bank business. This prompted GSIS to set its sights to sell the bank as early as 2001. While the capital infusion did not generate returns, it sustained the bank for a possible sale. However, several legal impediments and complexities, including a court injunctive order, effectively prevented the GSIS from selling and divesting its shares in the bank to a third party. These legal cases were filed by the alleged minority stockholders purportedly represented by the heirs of the previous owner, the late Congressman Renato Dragon.

In view of the legal restriction to dispose GSIS shares in GFB that subsisted up to the time of the takeover of PDIC, GSIS was restrained from infusing capital to the Bank.

Hence, it was unable to raise the much needed capital to compete and to comply with prudential regulations.

Notwithstanding, GFB undertook to convert or monetize its non-earning assets as well as strived to maintain stability of deposits and sufficient liquidity to service depositor withdrawals and payment obligations. These resulted in the following:

• The deposit level of the Bank became stable despite negative publicity from the congressional investigations initiated by former shareholders. Since 2012, its deposit level only moved plus (+) or minus (-) 2% to 3% annually;

• Combined with a stable deposit base, the aggressive sale of Real and Other Properties Acquired (ROPA) and the diligent collection of past due loan accounts, the liquid assets of the bank were built up. As of May 2016, the liquid assets of the bank in relation to total deposits is a substantial 55%, much higher than the thrift industry average of 33%. This squarely addressed liquidity risk that is the biggest problem of banks that are distressed – the inability to service withdrawals; .

• The books of the bank were made to be more aligned to generally accepted accounting standards (Philippine Accounting and International Financial Reporting Standards). The books were corrected to reflect actual liabilities such as the excess collection on withholding tax on officers as well as the true level of assets with respect to the final withholding tax on GSIS placements; and

• Compliance with various BSP and PDIC exemptions and regulations.

Further, it must be emphasized that even at the time of receivership, the net margin of GFB is positive. While the capital of the bank was found to be deficient by regulators, the franchise or shareholder value of the bank from the point of view of the shareholder, GSIS and the prospective buyers, actually increased.

We hope that we have adequately clarified the issues raised by Mr. Bondoc in his column and correct some misleading and inaccurate statements. — NORA

MALUBAY-SALUDARES, Officer-In-Charge, Office of the President and General Manager, GSIS