Up to $9 million withdrawn from BLA before FSA take-over – Bollers

Up to EC $9 million had been withdrawn from the Building and Loan Association (BLA) as of February 1 this year, prior to the intervention by the Financial Services Authority.{{more}}

So says Executive Director of the FSA Sharda Bollers, who in a televised statement made last week, along with FSA Chairman Leon Snagg, and Assistant Executive Director Eleanor Astaphan, said that the Authority had no alternative but to regulate the 72-year-old Association.

Bollers outlined a number of inconsistencies and irregularities which affected the Association over the past four years, but pointed out that the run on the institution just prior to intervention caused a serious strain on the liquidity of the Association.

“This sum would have been considerably lessened, had the Association enforces its own mandatory Rule 77, to effect a notice period for withdrawal of special deposits, which would have given the Association some time to organize efforts for strengthening its liquidity position.

“The FSA had previously questioned the practice of immediate payouts and had also requested that the rule be enforced,” she noted.

“At the rate of withdrawal of funds, it was clear that within a limited number of days the institution would not have sufficient liquidity to honour its obligations to depositors and creditors. More importantly, there was no concerted efforts by the Association’s board of directors to contain this situation, nor sense of urgency to remedy the situation.”

The Executive Director listed other issues which were negatively affecting the Association, including inadequate and ineffective accounting and IT systems that served to prevent the preparation and completion of financial statements, unacceptable loan delinquency levels and ineffective collection and recovery.

Bollers stated that 250 mortgage loans were more than 12 months past due, to the tune of EC $45 million.

“While the foreclosure process is reportedly fast and does not involve court approval, it has taken four years for the B and L to sell 34 properties. The recently established recovery mechanism through RR Recovery Limited was dubious at best, lacked transparency, and was inadequately funded,” Bollers added.

According to Bollers, the profitability and solvency of the Association were recurrent core problems of major concern, that had not been effectively addressed by its board of directors, and that the Association had not been making profits for the last four years; also, the institution was inadequately capitalized to finance its normal operations and support the levels of risks inherent to its business.

“Considering such a poor performance record and the time elapsed since the recommendations and requirements had been made to the Association, the FSA had no grounds to believe that the required corrective action would be executed effectively and in a timely way under the present management and control of the association….

“Liquidation appeared to be imminent and the FSA felt that it had to act quickly and effectively to avert such a situation.

“This was reinforced by the Association’s position of allowing millions of dollars to be immediately withdrawn from the association, sometimes on a daily basis, during the days prior to the intervention,” Bollers said.(JJ)