LBP offers city lower loan interest for SRP

CEBU, Philippines - The Land Bank of the Philippines has offered the Cebu City government an interest rate of 4.5 percent for a new loan the latter plans to acquire to pay in full the P2.9 billion remaining outstanding balance of the debt it incurred in developing the South Road Properties.

If the city continues paying its loan, which is yen-denominated, until 2025, it is projected to suffer a foreign exchange loss of approximately P992.63 million.

City Accountant Mark Solomon told yesterday’s City Council executive session that the city has been suffering from interest rate fluctuations at an average of P90.24 million per year from 2005 up to the present.

“The substantial amount, which was charged to the general fund, could have been used as budget for basic services of the city,” he said.

Currently, the city’s loan balance with the Japan Bank of International Cooperation stands at around P2.92 billion.

In 1996, the city took a Y12.315 billion (P4.65 billion during the date of transaction) loan from JBIC to develop the 300-hectare SRP. The city has so far paid P2.66 billion for the principal amount.

“There’s a need to convert the loan to get rid of the one percent guarantee fee and to fix the actual interest rate to its nominal rate. Unless we provide remedy today, the coffers of the city will continue to bleed, which will eventually affect the city’s capacity to deliver basic services,” Solomon said.

Former congressman Tomas Osmeña, who was among those invited to the session, opposed the buyout plan.

“I think we just concentrate on spending our money wisely instead spending our time trying to convert just to save P100 million pesos a year,” he said.

Osmeña, LBP officials, and members of the city’s Local Finance Committee appeared before the City Council yesterday to apprise members on the advantages and disadvantages of making a new loan in peso currency to pay off the remaining balance of the yen-denominated JBIC loan to avoid foreign exchange loss.

Elsie Fe Tagupa, LBP assistant vice president, said the city would be given a low interest rate of just 4.5 percent and on a diminishing balance. The rate is lower than the 11 percent the city is paying as interest to LBP for being the conduit bank for the JBIC loan.

“Landbank is willing to share your burden. We will give you until 2025 to pay off (the new loan) with 4.5 percent interest. We want to protect the city from (the exchange rate) fluctuations so we want to convert it (SRP loan) to peso,” she said.

Tagupa also said that to unburden the city, they would also amend the subsidiary loan agreement for the national government’s guarantee/commitment fee of one-percent of the outstanding balance per year that it gets as share from the city’s loan payments.

She said that if the city would take a loan from LBP, it would be freed from paying the pre-payment penalty, which costs the city millions of pesos.

This, however, would only be possible if the city can secure a latest Department of Interior and Local Government “Seal of Good Housekeeping,” which the city got in 2011 yet.

Tagupa said they cannot grant a new loan or convert the yen-denominated loan to peso if the city would not comply with the said requirement.— /RHM (FREEMAN)