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MOU and the Rescue / Rehabilitation Plan for the Coop Bank of Leyte (CBL)

MOU and the Rescue / Rehabilitation Plan for the Coop Bank of Leyte (CBL). Section 1 - past and current situation of CBL Section 2 - SEEDFINANCE Corporation Section 3 - the Rehab Plan / MOU Section 4 - the various benefits.

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MOU and the Rescue / Rehabilitation Plan for the Coop Bank of Leyte (CBL)

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  1. MOU and the Rescue / Rehabilitation Planfor the Coop Bank of Leyte (CBL)

  2. Section 1 - past and current situation of CBLSection 2 - SEEDFINANCE CorporationSection 3 - the Rehab Plan / MOUSection 4 - the various benefits

  3. History: CBL was established in 1978, with an initial capital of 250K. Now it has a capital base of 11M. It is owned by more than 70 cooperatives and SNs, including PHCCI.

  4. The current dire situation of the bank: 1) The deteriorating financial condition of CBL has put the Bank in BSP’s Prompt Corrective Action (PCA). If there is no additional equity capital, that may mean the failure of the PCA, the eventual collapse of the bank, and the BSP shall be forced to shut it down. 2) CBL lacks qualified and aggressive management team, but recently the Board has appointed a new Manager.

  5. The current dire situation of the bank: 3) CBL needs to reorganize to strengthen operations;4) Assistance is needed by Management to develop new strategies and new products to be more competitive, and in order to survive;

  6. Real situation: 5) Personnel lacks the appropriate training in their respective areas of operation6) Majority of the personnel are close to their “retirement” stage having worked with the Bank for more than 15 years;7) Reporting (particularly to the Board) and monitoring system has been deficient despite the existence of policies;

  7. Real situation: 8) There has been many DOSRI loans, and many of these loans are still outstanding and past due9) Shareholders up to the present time do not receive dividends; shareholders are concerned on the protection of their investments;10) There is a need to look for a market niche; new products need to be designed to complement the products of the primary coops

  8. Real situation: 11) There are serious weaknesses in the bank’s organizational structure, manpower complement and the systems and procedures operating within the bank. 12) CAMELS composite rating is “2” which means that CBL has serious financial and managerial deficiencies resulting into unsatisfactory performance.

  9. Real situation: 13) The bank recorded net operating losses during the four years under review. 14) Paid –up capital of P11M was impaired due to the P6M accumulated deficits.15) Past due loans continuously increased from P6M in 2007 to P10.9M in 2010. These bad debts have caused a negative capital situation, and at least 6.8 million pesos are urgently needed to make it 1% CAR.

  10. Central Problem: Poor management: CBL has been on decline for the past 3 years. CBL recorded losses in the past 3 years, due mainly to poor loan collections and poor banking practices.

  11. CENTRAL PROBLEMS: Lack of honesty, integrity and competence of management staff. Lack of capital and liquidityPoor systems and products

  12. Solutions: The BOD decided to replace the Manager with a more honest, competent and experienced person. The Loan Officer has been replaced too.

  13. Solutions: There is a need to re-capitalize the bank, by infusing fresh equity. A new strategic partner – SEEDFINANCE – will be needed to help revive the bank.

  14. Solutions: SEEDFINANCE will infuse additional capital too, and will provide various management and technical support services. To improve systems, products, marketing and capital base.

  15. If we don’t act now: The BSP will shut down CBL!Many people and institutions will lose:All the depositors of the bankThe Shareholder primary coops SEEDFINANCE will be affected tooAll preferred shareholdersAll creditorsThe BOD members

  16. Section 2describes briefly SEEDFINANCE Corporation

  17. The SEEDFINANCE Corporation is registered with the SEC, with authorized capital of PhP 120 million, registered as a financing company. Our paid-up capital is now nearly 80 million pesos. Will increase its authorized capital stock from 120 million pesos to 900 million pesos• We have partnered with PNB Capital to help raise equity and debt capital for us, and there are on-going negotiations now where new investors to come in

  18. Our social mission: To build capacities of local rural microfinance organizations, including cooperatives, so they can deliver appropriate and affordable financial and non-financial services to poor and low-income households all over the country.

  19. We are owned 60% by CARE USA, and co-owned 40% by SEAD Inc (a microfinance NGO) and also by a number of partner cooperatives and microfinance organizations. Many of CBL shareholders are also network members and shareholders of SEEDFINANCE. • We have a 9-man Board of Directors and a 5-man Executive Committee. We have 21 employees, of which 8 are in the Head Office (Manila) and the rest are in the regions.

  20. • Computerized accounting system• Our Company is led by a President /CEO who also leads a Senior Management Team comprising of 4 top managers• Partners with 78 Partner Financial Institutions (PFIs), consisting mostly of primary cooperatives. CBL is one of our pioneer partners since 2002. The number of PFIs is expected to reach 100 within the next 3 years.

  21. • Our Company was established by CARE Philippines in 1993 as a microfinance project. We provide training, technical assistance and loans to small and medium size Microfinance Institutions (MFIs) in the country. We have a solid track record of building the institutional capacities of partner MFIs. Prime example is OCCCI which SEEDFINANCE started to assist in 1994.

  22. • We are essentially a wholesale microfinance financing company • The network of partners are the customer base of the Company and also serve as the channel to deliver or sell microfinance products • Through this network of PFIs, this company is reaching out to 1.2 million microfinance end-clients

  23. • Various products and services: loans of various types and purposes, training and consulting services, project management services, technical assistance services, etc. • Income streams: (2) interest incomes on loans, (2) consultation and training fees, (3) small grants from donors for special projects. •

  24. • Our new income streams: (1) commissions on the sale of airtime (SMART Telecom), (2) share in the remittance fees earned by mobile banking units – SMART Money, (3) share in the installation of ATM machines and hosted core banking systems in PFIs, (4) share in ATM transaction fees. •

  25. • The major foreign creditors are: MicroVest (USA), Oikocredit (Netherlands), DWM (USA), SNS (Netherlands), PlaNIS (France), ResponsAbility (Switzerland), CARE (USA), DWM (Dutch), Symbiotics (USA), INCOFIN (Belguim) and CARE UK. New incoming partners are ACCION International (USA) and Elevar Equity (India). The major local creditors are: BPI, BPI-Globe Banko, Land Bank of the Philippines, and Small Business Corporation.

  26. Our total assets = 620 million pesos; will reach 800 million pesos by Dec-2011 Total capital = 80 million pesos Capital will increase to 290 million by year-end with the entry of PNB as a 33% shareholderNet-Profit Profit before-tax = PhP 5.6 million • ROE = 10.2 % • Capital Adequacy Ratio = 22% • Portfolio at Risk = 2.6%

  27. There are on-going negotiations with ACCION International (USA) and Advans Group (France) regarding a plan to operate a Thrift Bank in the Philippines, to serve millions of poor people and MSMEs.We also receive some grants from PCFC, Oikocredit and MCPI for capacity development of selected PFIs.

  28. Microvest, ACCION International and other international investors, including international cooperative-based banks are interested in supporting this bank acquisition project, if it will result to helping hundreds of cooperatives and millions of poor people in the Philippines.

  29. Section 3describes briefly the Rescue and Rehab Plan as per MOU

  30. The Rehab Plan:CBL will have a new Management Team. CBL will improve its management systems, products, and its collection efforts to reduce the High Past Dues, which is the main cause of the bank’s deteriorating financial condition. CBL will come up with new strategies, formulate and implement a business improvement plan to enable the Bank to entice more depositors and/or investors to increase the capitalization of the bank.

  31. SEEDFINANCE shall enter into a SPECIAL PARTNERSHIP arrangementwith CBL which can be summarized in three wordsRescueDevelop Upgrade

  32. Phase 1 - RescueThe objective of this Phase is to prevent the possibility of the BSP closing down the bank due to negative equity and due to poor management.

  33. Phase 1 - Rescue 1) BOD to replace key people with good, honest and competent managers and staff. Motivate staff to strive hard and work honestly to improve business of the bank.

  34. Phase 1 - Rescue 2) Existing shareholders need to invest immediately at least 6.3 million pesos to erase negative capital and attain 1% CAR.Also, fresh equity investment is needed, amounting to at least 8 million pesos to bring it to 10% CAR.

  35. Phase 1 - Rescue 3) With the approval of the shareholders of CBL, SEEDFINANCE will invest 7 million pesos, as initial investments, in Preferred Shares “D” within 30 days after the signing of the MOU. Then a further 43 million pesos will be infused over a 12-month period.

  36. Phase 1 - Rescue 4) Board representative: The shareholders shall allow one representative from SEEDFINANCE to sit as a non-voting representative to the CBL Board of Directors, to provide management and governance advice to your bank.

  37. Phase 1 - Rescue 5) Pro-bono Consultant: CBL shall appoint SEEDFINANCE as a “management consultant”, on pro-bono basis. This makes our management advice and services essentially FREE to the bank.

  38. Phase 1 - Rescue 6) Improve basic management systems, including steps to improve credit policy, collections, MIS and internal control systems.

  39. Phase 1 - Rescue 7) Collect All Past Due Loans, this may include: (i) writing-off all uncollectible loans, (ii) rescheduling and/or restructuring accounts, (iii) initiating legal action, (iv) foreclosing assets of defaulters, and (v) disposing of all acquired and re-possessed properties.

  40. Phase 1 - Rescue 8) Address All Outstanding Audit Issues and all compliance issues as revealed in past BSP audits & examinations, to make CBL fully compliant with all BSP rules and banking norms.

  41. Phase 2 – DevelopThe objectives of this Phase are (a) to develop the deposit-taking and lending business of the bank, so that it will become a profitable small bank, (b) to exit the PCA program of the BSP, and (c) further increase the capital base of CBL.

  42. Phase 2 – Develop Additional Capital Infusion: SEEDFINANCE will infuse new additional equity and debt capital to finance the growth of CBL’s loan portfolio; additional 43 million pesos, making SEEDFINANCE’s initial infusion to 50 million pesos. SEEDFINANCE may infuse up to 128 million pesos, to get 40% of the voting shares of the Thrift Bank. The loan portfolio of CBL must be increased to generate sufficient revenues

  43. Phase 2 – Develop We will develop New Products and Services: improve the deposit-taking products and loans of the bank to make them attractive to primary cooperatives and local people. Install Better Marketing Systems and linkages: Intensify the promotions of bank’s services to the local community and other cooperatives in other places. We shall develop linkages with more partner cooperatives in provinces outside of Leyte.

  44. Phase 2 – Develop Gather more capital from existing CBL shareholders. We should aim for at least 60 million pesos as fresh equity from coops, coop federations, community NGOs and local commercial investors (with demonstrated social projects).

  45. Bring up CAR to 10% The BSP requires the existing shareholders to first infuse fresh equity capital to bring up CAR to 1% within 15 days, and then to 10% within 12 months. Fresh equity from SEEDFINANCE will not be counted in the CAR calculation if the existing shareholders does not infuse fresh capital first.

  46. Recapitalization Plan (first year)OCCCI = 40 % shareholdingsPHCCI = 40 % shareholdingsBangkoop = 10 % shareholdings Other coops = 10% of shares

  47. Phase 2 – Develop Get rehab assistance from the BSP and PDIC under the SPRB program. SEEDFINANCE shall link the bank to new creditors: SBC, PNB, BPI, AUB and LBP.SEEDFINANCE shall link the bank with foreign creditors: Symbiotics, Elevar, ACCION, etc.

  48. Phase 2 – Develop Increase the Loan Portfolio of the Bank to at least PhP70 million within 24 months after the signing of this MOU, in order to generate sufficient revenues to meet basic operational expenses as well as to show net profits;

  49. Phase 2 – Develop Exit PCA: with stronger capital base, better business and better management, we shall convince BSP to lift PCAby June 2012

  50. Phase 3 – UPGRADE the BANKThe objective of this Phase is: (a) to gather new and bigger shareholders and investors who will put more money into the bank, (b) develop a new five-year New Business Plan, and (c) to convert CBL into a Thrift Bank

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