PM Gonsalves: Irregularities were plaguing Building and Loan Association

Millions of dollars in non-performing loans, along with discrepancies relating to financial transactions, are some of the irregularities that have been plaguing the St Vincent and the Grenadines Building and Loan Association for years.{{more}}

At a press conference on Tuesday at Cabinet room, Prime Minister and Minister of Finance Dr Ralph Gonsalves disclosed that the board and management of the Association failed to heed the warnings of financial examiners, who, in documents dated 2009 and 2012 outlined issues concerning the financial stability of the institution.

Reading from a report dated September 2009, issued by the supervisory and regulatory division of the Ministry of Finance, Gonsalves gave examples of deficient accounts, without identifying the individuals or businesses involved.

“Two daughters of a leading board member, each of them two hundred and twenty-two plus dollars; the deficiency: the deed not registered due to non-payment of solicitor’s fee.

“They get the money, but they ain’t pay the solicitor’s fee; that meanthe documents not registered….

“Another leading member on the board, with a loan in excess of $600,000 — delinquent. The purpose of the loan not stated….

“A major figure in the management — the loan $971,043; the deficiency — loan spasmodically paid”…

“A former member of government under the NDP (New Democratic Party), the loan in the region of $200,000, 11 years delinquent — no collection plan…. Another former member of the NDP administration; a loan for him and family members: $548,863, in the column of delinquency — valuation of the security provided by the borrower….

“A particular company, $2,976,735; no corporate resolution authorizing the borrowing, no financial information on the borrower, no insurance for the loan.”

Admitting that the names of supporters of his Unity Labour Party (ULP) were also on the list, Gonsalves said these persons were not in the upper echelons of the ULP and the amounts owing were not as sizeable as the ones he presented.

Still reading from the Ministry of Finance 2009 report and another dated July 2012, submitted by external auditors, Gonsalves outlined areas where the examiners informed the board of their findings, and made recommendations. Quoting from the reports, he said:

“‘The condition of the Building and Loan Association is considered critical; the board has fallen short in its fiduciary responsibilities by failing to formulate, and in some cases, implement appropriate policies, strategies and procedures to allow for the proper functioning of the institution.

“‘This has resulted in an astronomical level of delinquency from 2006 through 2009. The delinquency ratio average is 55 per cent of the total loans. As at June 30 2009, the delinquent loans were 45 per cent which reflects some improvement, but are still considered excessive.

“‘As at the examination date… liquidity risk was assessed as high. The Association’s cash flow has been restricted by the high and increasing level of delinquency, as well as the unusually high request for withdrawals from special deposits.

“‘In addition to this, the high rate of dividend paid on deposits without an offset from a steady inflow of funds placed even more strain on the Association’s liquidity; further to this the Association had no contingency plan in place to deal with the liquidity situation….

“‘The Association also suffers from an outdated and inadequate management information system and poor internal controls. This was evidenced by a number of control deficiencies that were identified and the absence of a documented system in place to follow up on corrective actions.

“‘For years, the Association had been experiencing problems; the board had been informed of the problems by the external auditors and yet had taken no action to halt the deterioration.

“The Association is in a grave condition and the probability of failing high; the board of directors and management must take immediate corrective actions to arrest the current deficiencies in order to prevent failure.

“‘Building and Loan appears to be in a critical situation regarding profitability and solvency.

“‘For the past three years the Association has been making losses, which would be deemed much greater if the accrual of interest on non-performing loans over 90 days was discontinued.

“‘The solvency is overstated by the under provisioning of non-performing loans which are reportedly over 32 per cent. 20 per cent of the mortgage portfolio is over 12 months past due.

“‘The liquidity of the Building and Loan Association is tight, but the management does not foresee any liquidity stress. The ratio of liquid assets over special deposits is about 10 per cent, but management currently indicated that they did not have any liquidity issues because they sold properties recently and they did not have high withdrawals; however, it is not clear that the Association may be in a position to handle significant withdrawals, as happened in 2009’.”

Commenting, the Prime Minister and Minister of Finance said that he had been hesitant about divulging the information to the public, but believed it was essential that people understand, appreciate and support the Financial Services Authority’s takeover of the Association, given the comments made by the leadership of the Opposition the day before.

“It is necessary… to assist in the further strengthening of the viability of the Building and Loan Association, to support this excellent organization, to strengthen the viability of a longstanding institution in this country and to support the work of the FSA within the framework of a very comprehensive piece of legislation designed to protect depositors, shareholders, the general public and the financial system,” the prime minister said.(JJ)