The Government Service Insurance System (GSIS) is up to its ears in frustration with its thrift bank unit, where it has invested millions for many years and reported everything, but making money on the venture.
GSIS President and General Manager Robert Vergara said on Wednesday all they can show for the effort are the string of losses at the GSIS Family Bank.
He said the state-owned pension fund has since given up investing more to improve the bank’s cash flow and capital structure, and want out of the bank instead.
“It [bank] does not anymore put our members in an investment (play) that has real prospects of generating equity returns. We’d rather sell and get out, and let the bank be run properly. With the money we can get, we can invest it and hopefully we can recover what we lost over the years by investing well,” he told the BusinessMirror.
“I hope investors will come in and run the bank properly because there is money to be made in banking if you know what you are doing. If you don’t lend well, [borrowers end up] not paying their loans well [and] that happens to banks that do not have strong risk systems or strong management” he added.
According to Vergara, the bank has stopped taking loans but has done some asset sales that made some gains.
“Bank do not make money by acquiring assets and selling them. You make money by extending loans and receiving interest payments,” he said.
Some of the real property the GSIS sold posted increased valuation and to some extent made up for the loan losses.
“We have lost interest income through the years. Even if we have high asset price sales, we don’t think we’d be able to recover what was lost. Banks need to generate a net-interest margin,” he said.
Vergara, likewise, said GSIS Family Bank needs to invest in new information-technology systems to boost its risk management.
According to the Development Bank of the Philippines (DBP), the lender’s financial advisor, the government will sell the unit for at least P501 million, but that the buyer should also be able to infuse additional capital.
GSIS Family Bank is undercapitalized at only P232.424 million, way below the P325- million minimum required by the Bangko Sentral ng Pilipinas.
When asked about the possibility of offering it to government banks Land Bank of the Philippines (LandBank) and to its financial advisor DBP, Vergara said: “Right now, DBP and LandBank are talking about combining the banks and that’s their priority.”
In the past LandBank showed initial interest, but later on decided they can grow its own franchise organically.
Vergara said there are particular parties who are interested in bidding for GSIS Family Bank whose planned sale has been sweetened with incentives, such as the privilege of relocating 12 of the thrift unit’s 22 branches. The location of branches is tightly regulated by the BSP. The buyer is also given the option to open 20 additional branches as added sweetener.