Pardo pushes for new ruling in evaluating loan requests

Finance Secretary Jose T. Pardo said yesterday he would push for a new ruling by the Monetary Board that would require all banks to accept only audited financial statements in evaluating loan applications.

According to Pardo, the current practice allows the submission of "interim" financial statements which supposedly show the financial condition of the borrower.

Unfortunately, such a financial statement sometimes turns out to be far from the real financial situation of the borrower and a wrong credit evaluation is made by the bank in granting a loan.

Pardo said that such a reform is needed in the banking sector, especially with rising loan defaults.

As of end-November 1999, the banking system's non-performing loan levels had again risen to 14.6 percent after initially appearing to taper off when it declined to about 13.8 percent.

Pardo, who now sits on the Monetary Board, said that he has "telegraphed" his proposals to the MB, hoping that it would be placed on the agenda of the board for discussion soon.

He admitted not being certain if there is any legal basis for his proposal, but if it needs one, then the matter has to be forwarded to Congress for legislation.

However, Pardo said BSP Gov. Rafael B. Buenaventura had indicated that there is no need for a legislation.

Buenaventura indicated that all that may be needed for banks to follow such a requirement is for the issuance of a BSP circular. Pardo's proposal, however, is not entirely new as there had been a similar proposal for the use of audited financial statement.

The problem with such a requirement is that only the big corporation normally have an audit done of their financial statements. Small businesses normally do not have any formal audit.

Another proposal, which is not also new and touches on taxation is the submission of statements of assets and liabilities (SALs) as the basis for a new amnesty program.

Former Finance Secretary Edgardo B. Espiritu had also proposed that the submission of SALs be required for all taxpayers, but his proposal was shut down in Congress.