SEC to finance firms: Keep cash flow levels in check

The Securities and Exchange Commission (SEC) has warned financing companies to keep their cash flow levels in check in order to avoid a possible collapse due to the prevailing adverse economic conditions.

An industry update by the SEC’s Corporation Finance Department (CFD) shows that despite a slight rise in the number of financing companies, their consolidated financial condition has deteriorated this year.

Financing companies extend credit facilities to consumers, industrial, commercial or agricultural enterprises by direct lending or by discounting or factoring commercial papers or account receivables. They likewise engage in buying and selling contracts, leases, chattel mortgages, or other forms of indebtedness.

The SEC said the total asset base of the industry had dropped to P52.75 billion as of June 2001 or nearly four percent less than the P54.74 billion level a year ago. Funds invested in financing activities, trading account securities, investments in bonds and other debt instruments and equipment and other properties for lease constitute the bulk of the industry’s assets.

On the other hand, the total liabilities of the industry had reached P36.53 billion, over three percent more than a year earlier. Moreover, the industry’s profitability suffered a big blow as the consolidated net income decreased by 60 percent from P925.4 million to P369.2 million.

The SEC said while the industry still has adequate capital to withstand the negative effects of the economic and political turmoil in the country, "the scenario that the liquidity ratios may continuously drop, if not sustained, may lead to the industry’s inability to meet its maturing obligations and operating expenses."

"The industry is highly leveraged indicating that there is a great utilization of debt than equity," the SEC added.

It noted that there is only a light upsurge in the adequacy of the current assets to satisfy all current obligations as the current ratio was calculated at 1.27:1. The same is true with the solvency ratio calculated at 1.44.1.

As of end-August this year, there were 177 financing companies registered with the SEC. Among the biggest players in the industry are subsidiaries or affiliates of banks and other financial institutions, namely Bank of Philippine Islands, UCPB and Equitable-PCI.

All Asia Capital & Trust Corp. still holds a shaky lead over the BPI group with an asset base of just over P5 billion even as the company faces financial difficulties.

The BPI group showed its dominance in the income aspect as it emerged as the most profitable in the industry. BPI Capital, BPI Card Finance and PBI Leasing cornered the top three slots in terms of earnings, ranging from P82 million to P229.5 million as of end-June 2001, followed by PCI leasing and People’s Credit & Finance Corp. – Conrado Diaz Jr.