UCPB recapitalization to take at least 10 years

The recapitalization of the United Coconut Planters Bank (UCPB) will take at least 10 years under the P20-billion rescue plan being studied by the government and the bank management.

Finance Secretary Jose Isidro Camacho told reporters yesterday that the rescue plan is so far the only plan on the table that addresses the shareholder issue and the difficulty of recapitalizing the bank whose ownership is still under question.

Although the debate is not over yet, Camacho said the consensus is that the plan would not require the approval of the shareholders or of Malacañang which he said is out of the discussion at this point.

"At the very least, it will stabilize the financial position of the bank," Camacho said.

Under the plan, the Philippine Deposit Insurance Co. (PDIC) would shell out P20 billion to pull UCPB out of its financial rut, first by buying P13-billion worth of bad loans, then second by buying P7-billion worth of subordinated debt.

A source from the Bangko Sentral ng Pilipinas (BSP) explained that when implemented, PDIC would buy the bulk of UCPB‚s bad loans and this would effectively free an equivalent amount of bad loan provisioning that otherwise could not be touched.

Under BSP rules, banks are required to set aside a portion of their funds for loan loss provisioning and this money could not be lent out or used in any investment.

"Since the funds would be freed for investments, it is assumed that the bank would get more income," the source pointed out. "These would be retained earnings which would then roll bank into the bank’s capital."

The BSP official admitted that the process is a protracted one but it is the only available route that would enable the bank to recapitalize and at the same time avoid the unresolved question of bank ownership.