KINGSTOWN, St. Vincent, Feb. 24, IWN — Some EC$9 million was withdrawn from the Building & Loan Association (BLA) during the two weeks before it was taken over by the Financial Services Authority (FSA).
The disclosure came from Sharda Bollers, executive-director of the FSA, who last week gave the reasons for the FSA intervention and noted that her agency could have chosen to liquidate the BLA.
In a statement to the Agency for Public Information, Bollers said that even as the BLA was experiencing a run, there was no concerted effort by the board of directors to contain the situation as well as no sense of urgency being shown to remedy it.
“… liquidation of this Association appeared imminent and the FSA felt that it had to act quickly and effectively in order to avert such a situation,” Bollers said.
Liquidation wasn’t considered
“I believe it bears mentioning here that one of the options available to the FSA was in fact to liquidate or wind up this institution,” she said, adding that the FSA did not explore that option, “even though the typical textbook scenario for liquidation presented itself”.
Instead, she said, the FSA has been working to strengthen and stabilise the BLA “not just for the present generation of the people of St. Vincent and the Grenadines but also for further generations”.
Bollers said decision making at the BLA is now vested with the FSA, and decisions are made through an executive committee comprising the FSA team members and the Association’s divisional managers.
She gave the reasons for the take over as follows:
- Serious strain on liquidity caused by a run on deposits and redemption of shares.
- Profitability and solvency were recurrent, core problems of major concern that had not been effectively addressed
- Unacceptable level of non-performing loans and ineffective recovery mechanism.
- Inadequate accounting and information technology systems, which prevented the preparation and completion of financial statement.
- Poor governance practices, and lack of transparent operational policies; existing procedures were inadequate and not applied.
Bollers said the strain on liquidity resulted from a run triggered by “unfavourable press”.
The run on the BLA came after government economist Luke Browne’s newspaper letter on Jan. 18, asking if the BLA was on the verge of collapse.
But Bollers said the EC$9 million withdrawn from the building society would have been considerably lessened had the BLA effectively enforced its own mandatory notice period.
“This would have also given the Association some time to organise for strengthening its liquidity position,” Bollers said, adding that the FSA had “previously questioned the practise of immediate withdrawal of funds”.
She said it was clear to the FSA that “within a limited number of days, the institution would not have had sufficient liquidity to honour its debts and obligations to its creditors and depositors”.
She further said profitability and solvency “were recurrent, core problems of major concern that had not been effectively addressed by its board of directors.”
The BLA had not been making profits for four years and was inadequately capitalised, she added.
Bollers said 250 non-performing loans were 12 months past due, for an amount of approximately EC$45 million.
The foreclosure process in St. Vincent and the Grenadines is fast and does not normally involve the court, but it had taken four years for BLA to sell 34 properties, Bollers said.
“The recently established mechanism for recovery, through the RR Recoveries Ltd. (a subsidiary of the BLA) at its best was dubious, lacked transparency and had inadequate funding,” she said.
Regarding the accounting and IT systems, Bollers said that while audited financial statements were outstanding for two year, the BLA “continued to operate under a system that has proven to be ineffective, in order to test that system.
“This system had already caused major setbacks and had failed to deliver in over one year.
“Indeed the irresponsibility of handling of the IT system and the lack of transparency with the regulators and members by the non-production of audited statements in two years, standing alone, would have merited intervention in many countries,” she said, adding that the importance of IT and accounting systems cannot be overstated.
“This is the basic machinery which illustrate accountability and transparency in any institution.”
The BLA, Boller further said, had poor governance practices and a lack of transparent operational policies and procedures.
If these policies and procedures were in place, they were inadequate and not applied,” she said.
“Indeed, exception seemed to be the rule of the day rather than the rules of the Association being enforced, which should have been done.
“In summary, considering the poor performance record and the time elapsed, since the recommendations made to the Association, the requirement had been pointed out, in terms of corrective measures, the FSA simply had no ground upon which to believe that the required corrective action would have been taken in a timely, efficient and effective manner by the Association.
“Indeed, this was reinforced by the Association’s action of immediately allowing withdrawal of special deposits to the amount of millions of dollars on a daily basis prior to the intervention…” she said.
Reasons in perspective
In putting into perspective the reasons for the takeover, Bollers said a special examination of the BLA in 2009 — when
The Ministry of Finance supervised it — found several deficiencies, including poor asset quality, weak corporate governance, inadequate management systems, and poor internal controls.
These deficiencies were pointed out to the BLA on three occasions in 2012, Bollers said.
“Between 2010 and 2012, although some progress was made by the Association, this progress, taken as a whole, we considered to be severely limited.”
The number of non-performing loans was high and increasing and there was no evidence that revised business plans were approved by board or were being implemented and the current business model “remained unprofitable and risky”.
Bollers said a regulator weighs all the facts and circumstances before intervention and that the decision to intervene “is not an easy decision for any regulator”.
She asked for the co-operation, patience and understanding of the relevant parties to allow FSA time to remedy the problems at the BLA.
“This is not a problem that occurred over night,” she said.
“Given the facts as we found them, given the circumstances as we have found them, we have confidence in this institution to survive. We believe that you should have that confidence in an institution, which everybody describes as being an iconic institution, which has in fact served the people of St. Vincent and the Grenadines for generations already. We believe that we are able to assist this institution, with your support and with your cooperation,” Bollers said in the statement to the API.