Term sheet advantageous to government, says PNB president

Government assistance to Philippine National Bank was essentially a judgment call with public interest being the foremost consideration. Government is committed to rehabilitate PNB to protect its depositors and creditors.

Feliciano L. Miranda Jr., president and CEO of PNB, said yesterday that a failure of a major bank "may cause other banks to fail leading to disruptions and loss of confidence in the safety and soundness of the banking system."

In a news statement, Miranda said PNB’s impact to the banking system is considerable given its size and scope.

He also pointed out that the government has a moral obligation to rehabilitate PNB because its losses came from bad loans granted when the government managed the bank.

Miranda was reacting to a published statement of former Central Bank Governor Jose Cuisia that Congress should investigate the deal between the government and industrialist Lucio C. Tan to rehabilitate PNB.

"The facts indicate that the term sheet is advantageous to the government," he said.

On the planned power-sharing agreement on PNB, Miranda said Tan allowed the government to have four seats in the board with PDIC president Norberto Nazareno as chairman. The Lucio Tan Group (LTG) controls 68 percent of the voting rights while the government owns about 16 percent entitling it to only two seats in the board.

Cuisia wondered why government bailed out PNB and asked whether there was really a run.

Miranda said PNB experienced heavy withdrawals beginning in late September 2000 prompting it to request liquidity loans from the Bangko Sentral and the Philippine Deposit Insurance Corp.

Through BSP and PDIC, the government extended a total of P25 billion in liquidity assistance to PNB in October 2000 with the intention of folding the loans into a formal rehabilitation plan of PNB.

The loans were preconditioned upon a P10 billion capital infusion by Tan in PNB. To date, PNB has already paid P11 billion for a remaining outstanding balance of P23 billion.

Had Tan not infused an additional capital of P20.3 billion, Miranda explained, the bank would have been deficient in the mandatory capital-to-risk-asset ratio and it would have been subject to severe legal sanctions.

Up to 1999, he added, the government was the largest stockholder of PNB and it would have been compelled to infuse additional capital because it was responsible for the bad loans of the bank. "The entry of LTG freed the government from this responsibility. It exculpated the government from the responsibility of putting up additional capital to cover losses from loans granted by government managers."

In February 2000, Congress conducted an inquiry into the acquisition of PNB shares by Tan. During the investigation, it was established that as early as 1998, PNB needed additional capital funds but there were no interested buyers.

Miranda dismissed speculations that there were special favors when the government granted financial assistance to PNB. He said the assistance was given to PNB in view of its pressing and fundamental problems and their adverse impact on depositors and not because of the perceived influence of its majority stockholder.