PNB starts rehabilitation process

Without the special purpose asset vehicle (SPAV) and the securitization law, troubled bank Philippine National Bank (PNB) has to start selling its assets to keep its head above water and ultimately return to profitability.

Adding to PNB’s woes, is that the foreign creditor community is keeping a close watch over the privatization proceedings of the former government financial institution (GFI). After all, creditors like the Asian Development Bank (ADB) had made it clear that loans could come easily for the Philippines if some of their "conditions" are met, and the privatization of PNB was one of those.

During its annual stockholders meeting, bank president Lorenzo V. Tan said that they had not recourse but to start disposing of its assets and working within reasonable conditions. Foremost among its rationalization activities, is to sell its headquarters located in the reclaimed area in Pasay City.

Tan said that the market cost of the headquarters is P6.5-billion, and that they are considering moving into "new" sites. Among these are several floors of either the Petron Plaza along Buendia Ave., or the BA-Lepanto bldg. along Paseo de Roxas Ave.

"We have considerable holdings in these establishments which have become an option for the bank’s new corporate headquarters. We have stakes in both buildings," the former United Coconut Planters Bank (UCPB) president and chief executive officer said. Tan helped make UCPB profitable despite its inherent limitations.

The sale of the existing PNB headquarters is part of the five-year rehabilitation plan which has still to be submitted to the Bangko Sentral ng Pilipinas (BSP) and the Philippine Deposit Insurance Corp. (PDIC).

Tan said the rehab program would be submitted "within the next few weeks." When the PNB signed a memorandum of agreement (MOA) with government last May 3 it committed to submit a rehabilitation program after 90 days.

Tan admitted that by selling the corporate headquarters, the bank stands to save as much as P250-million yearly. Yearly rental earnings were in the vicinity of P40 million while expenses for the same reached P290 million.

"The initial impact of the rehabilitation is to prevent the company’s further deterioration, and at the same time, enable it to comply with the minimum capital adequacy ratio (CAR) of 10-percent. We project that the bank’s past due ratio may be brought down to 39-percent, and that as a result of this effort, we project a lower net loss of about P2.9 billion this year," the bank president said.

Tan said that the central focus of the rehabilitation plan is to reduce its non-performing loans (NPLs), to develop and dispose of its foreclosed properties, to rationalize its present structure, and to attract new depositors and new clients.

As of end 2001, the bank’s non-performing assets (NPAs) stood at approximately P90.3 billion of which some P42.2 billion are NPLs, at least P23.5 billion are real and other properties owned or acquired (ROPOA), and P18.8 billion are classified as other assets.

That has resulted in a net loss of P4.13 billion end 2001. The bank expects to start registering a net income in Year Four (2005-2006) based on the rehabilitation program.

"Assuming all plans from Year One to Year Three fall into place, we expect to register net earnings of between P700 million to P800 million in Year Four," Tan said.

That means the corporate headquarters had been sold, and that assumes that it had been able to dispose of a major portion of its foreclosed properties. Based on its program, PNB should be disposing at least P1.5 billion of foreclosed properties every year.

The bank has been forced to form an asset management committee (AMC) to handle all its bad assets since foreign AMCs preferred to wait on the wings until the SPAV and securitization bill is passed into law.

But Tan said that they were also open to forming a joint venture AMC with interested parties. Or they could approach the national government to securitize these bad assets. "That is still another option."

Other highlights of the rehabilitation program are the repayment scheme for the P25-billion rehabilitation loan granted by the BSP and PDIC.

Of the total amount, P7.8 billion will be turned into convertible preferred shares at P40 per share while another P10 billion will be used for the dacion en pago with PDIC of various PNB loans to the national government, government financial institutions (GFIs), and other government owned or controlled corporations (GOCCs). Another P6.1 billion would be paid back over a 10-year period at a rate of 91-day Treasury bill (T-bill) rate plus one percent.

It will downsize its 1.952 employees both in the head office and the branches through a special separation program that should result in initial savings of P439 million in Year One.

Nonetheless, PNB plans to rebuild its branch network of 324 domestic and 77 international offices. That should result in a projected increase in low cost deposits from a modest P50 billion to P600 billion in the next two years, and up to P100 billion by the end of the rehabilitation period.

Tan said that it would maximize its strength in the remittance service by increasing its share of the market from 33-percent in end 2001 to 50 percent within the five-year rehab period. "There is still room for PNB to take the lead position in the remittance market," he stressed.

Premyo Pangkabuhayan 2001 is one of the strong products for the remittance market. Then there is infrastructure support, both domestic and overseas. Six domestic branches were relocated to new growth areas and four new overseas. Six domestic branches were relocated to new growth areas and four new overseas offices were opened in Vancouver, Canada; San Francisco, Virginia Beach, and Seattle in the United States.

That should increase the bank’s market share in the remittance market from 33 percent to 50 percent making it the dominant bank in the area of foreign exchange remittances.

Among the initial reaction of the financial market towards the bank is the upgrading by Moody’s of PNB’s rating for long-term foreign currency bonds from Ba2 to Bal; the rating for long-term foreign currency deposits from Ba3 to Ba2; and the rating for long-term domestic currency deposits from Ba3 to Baa3.