QUANTUM OF SOLACE* A Case of Golden Opportunity Commercial Bank
President Celso Valmores in his speech before the board members said: “I would like to seek your opinion regarding a major initiative of our bank, which is part of the implementation of Golden Opportunity Commercial Bank’s (GOCB) renewed strategy to be the bank of choice in terms of consumer banking. To be able to finance this new strategy and to aggressively revive our bank, GOCB is contemplating a major move that will, in effect, recover from losses brought about by increasing mortgage default payments, valued at P5.0 billion. This move is designed to fully extinguish our debts, create a new and dynamic bank and hopefully leave us Mr. Apodaca, CEO, explained that GOCBs high exposure to mortgage loans did not violate BSP’s 30% cap on real estate lending because the loans were for low-cost and socialized housing. GOCB has set aside P200 M in loan loss provisioning or 2% of the total loan receivables.
In 2008, trading and investment for most banks had remarkably reduced due to record-high inflation, increasing interest rates and lower bond prices. Consequently, key financial indicators of GOCB such as assets, deposit liabilities, trust assets and loans have significantly decline. Negative news about GRC relative to its capital crippled by huge losses linked to mortgage defaults and failure to meet the outstanding payables triggered the massive withdrawals of funds with GOCB. Several borrowers encountered cash flow problems as a result of sudden increase in interest rates and reversal trends in the real estate market and eroded confidence.
Further, GOCB provided 2.0 billion loans to two Philippine special purpose vehicles (SPV). The amount was used to pay for the purchase of bad assets from Philippine banks over the past four years. However, the bankruptcy of Lehman Brothers (LB) had negative financial impact to these SPV companies since LB has minority interests. The SPV law which was passed in December 2002 and expired after May 2008 helped banks get rid of their non performing assets (NPA) by waiving some of the
