Profiting from piety

The present problems of Monte de Piedad began with the idea of extending small loans to tricycle drivers.  The project bore all the credentials of piety, Christian love and charity, which alone could justify Church involvement in commerce.   When it was shown that the project would not only help the poor become productive, but that it would also earn some money for the bank, the Church knew it was an idea worthy of the bank’s name.

Lending to the poor has always been regarded as bad business.  The prevalent belief is that the poor are unstable, they have no concept of saving,  their priorities are irrational, and they quickly disappear when they can no longer pay their debts.   This reputation is very costly in terms of interest rates.  “Five-six” lending to the poor translates to 20 percent interest per week.  Yet, blocked from any access to conventional lending institutions, the poor have little choice but to turn to “five-six” usurers.

Some tricycle drivers who were offered the quick loans from the bank say they thought that the installment scheme devised by Monte and its lending conduit, the Strategic Lending Investors, Inc. (SLI), was in fact slightly less generous than those available from other sources.  (When fully paid, a tricycle loan will have grown to more than 3 times its original value.)  But, to them, the imprint of the Church made all the difference.  In their mind, they expected Monte Piedad to be more forgiving when the payments could not be made on time.

In this expectation, it now appears, they were not alone.   The lenders themselves expected them to default in their payments.  The view of the poor as unreliable borrowers served as a perfect cover  for justifying mounting uncollected loans.  Smart operators from the bank and from the SLI exploited this cover, and drained the bank of its deposits, while also collecting from the poor who, contrary to expectations, faithfully paid their debts.

What is remarkable is that the Church-owned bank earned so much money from its micro-lending program during the first 2 years that it authorized the payment of huge cash dividends to its shareholders. The windfall lulled the Church and the rest of the bank’s directors into complacency.  They decided to expand the credit program and release more bank resources to its lending partner, SLI, until the total smallloan portfolio reached a staggering P2.5 billion.

By 1994, the bank ended its relationship with Strategic Lending Investors, Inc. The bulk of the tricycle loans had become past-due, and virtually uncollectible.  The loan papers were in disarray, yet the bank could not go after SLI.  It had foolishly signed an undertaking that it would not hold the latter accountable for any unpaid loans.

The problem personally reached Cardinal Sin, says Bishop Ted Bacani, when he was asked to infuse more Church funds into the faltering bank.  An audit team sent by the Cardinal confirmed the extent of the bank’s financial woes, whereupon the leadership of the bank was changed and the decision was made to sell the Church’s 70 percent majority shares.  Nine potential buyers, Bishop Bacani recalls, were approached, but only one showed any serious interest in buying the bank – Vicente Tan.

The Cardinal thought it was very kind and very pious of Mr. Tan to have offered to bail out the Church despite the enormous problems arising from its lending program to the poor.  He thought such an act of duty deserved the worthiest recognition.  In February 1997, on the recommendation of the grateful Cardinal, the pious Mr. Tan became the recipient of the papal award of Knight of St. Sylvester.

Tan paid the Church P280 million for its shares in the bank in October 1995.  But, he said, he did not have enough cash at the time.  So he borrowed P355 million from Monte de Piedad, the bank he had just acquired, in order to pay the Church and two other minority shareholders he had bought out.

Thereafter, by his own admission, Tan set out to “window-dress” the bank.  He “sold” bank properties to some affiliates of the bank and represented the proceeds as fresh infusion of capital.  In this manner, he hoped to find foreign investors who were keen to operate a bank in the Philippines.  At this point, the Bangko Sentral and the Philippine Deposit Insurance Corporation (PDIC)  became aware of the bank’s looming insolvency.  PDIC president Ernest Leung said Tan took a long time to get new partners because his asking price was too high. The dutiful knight turned out, after all,  to be a very shrewd businessman.

But time ran out on him.  News about the true condition of the bank began to spread, and on April 23 this year, he was forced to request the Bangko Sentral to close Monte to avert a bank run.  Fifteen days later, under threat that the government would accept an Indonesian bank’s offer to buy Monte if he did not immediately infuse new capital to save the bank, he brought in Keppel, a Singaporean conglomerate.

Tan had blamed the problems of Monte de Piedad on its previous owner, the Church.  He was not fully informed, he said, of the true extent of its bad loans.  This is very difficult to believe.  He is a professional banker and not a tricycle driver.  In any event, a knight crying that his lord had betrayed him offends good taste.  If I were the Cardinal, I would strip him of his knighthood.  And if I were the Bangko Sentral, I would kick him out of Monte de Piedad.


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